DALLAS -- Expansion of a tolled subsea road tunnel beneath Chesapeake Bay will be financed with a $338.5 million low-interest federal loan and $321.5 million of toll revenue bond proceeds, Virginia Gov. Terry McAuliffe said Tuesday.
The project by the Chesapeake Bay Bridge and Tunnel District will add a second tunnel to the system of tunnels and bridges that opened in 1964.
The funding also includes a $50 million loan from the Virginia Infrastructure Bank and approximately $185 million of toll collections as well as the Transportation Infrastructure Finance and Innovation Act loan and the district's revenue bonds.
The district signed a $756 million design-build contract for the tunnel in July with Dragados Team, a joint venture of Dragados USA Inc. and Schiavone Construction Co. LLC, The entire project is expected to cost $924.8 million, which includes $15.2 million expended by the district since 2014.
The new 1-mile bored tunnel will supplement the existing southernmost tunnel, one of two that make up the 17.6-mile-long bridge-tunnel complex.
The bay crossing is two lanes in each direction above the water, but only one lane of traffic each way in the subsea tunnels. The bridge-tunnel opened in 1964 and the above-water bridge portions were expanded to four lanes in 1999.
The new Parallel Thimble Shoal Tunnel will expand the system's capacity and improve safety as it protects the area's economic competitiveness, McAuliffe said.
"The CBBT is the only direct link between Hampton Roads and Virginia's Eastern Shore, making this facility a vital and convenient connection, supporting commerce in the region," he said.
Moody's Investors Service rated the first-tier revenue bonds and the TIFIA loan at an underlying Baa2.
"Low investment grade ratings for both liens reflect the approximately 10-fold increase in debt for this well-established regional toll facility that provides somewhat essential service," said the Moody's team of analysts led by senior vice president Maria Matesanz.
Standard & Poor's provided a BBB rating for the district's revenue bonds and the TIFIA loan.
"The ratings reflect our view of the facility's strong demand characteristics, including a service area that provides a good base level of demand that has historically produced stable traffic and revenue growth despite its single-asset nature and high toll rates," said Dallas-based S&P analysts Anita Pancholy and Todd Spence.
The district will use approximately $102.4 million of general fund transfers to cash defease about $80 million of existing debt and terminate two outstanding swaps, S&P said.
The system's toll revenues in fiscal 2016 totaled $55.9 million, an increase of 5.2% from $53.2 million in fiscal 2015. The 3.9 million vehicle crossings in 2016 were up from 3.6 million in 2015.
Work on the new tunnel is expected to begin in October 2017 with completion in May 2022.
The tunnel project had been slated to begin in 2021, but district commissioners moved up the scheduled in May 2013 to take advantage of low interest rates.
"It seemed like it would be worthwhile to accelerate the tunnel project," said Thomas Anderson 3rd, director of finance for the district.
The Chesapeake Bay tunnel is the type of regionally significant effort that the low-interest TIFIA loans were designed for, said Transportation Secretary Anthony Foxx said.
"This loan will make it safer for travelers while reducing congestion and boosting the regional economy," he said.
The TIFIA loan was provided through the Transportation Department's Build America Bureau, Foxx said.
The department's credit programs have closed on more than $13 billion of financing for 24 projects with a total cost of $31 billion since 2014, he said.
