Bondholders have agreed to push back a key deadline on the lender agreement for bonds supporting the people mover project at Los Angeles International Airport.
The delay on the longstop date averts a threatened technical default on the bonds, and gives a consortium of private developers more time for the 30-day testing needed before the SkyLink trains can be placed into service.
"The lender longstop date was always meant to be two months prior to the construction long-stop date, so it could act as a hammer and the lender could freeze payments," said Seth Lehman, senior director at Fitch Ratings. "Since the project is 99% complete, there is no reason for a separation of the longstop dates, because there is no need to borrow more money on the bond funds."
The 2.25-mile automated people mover system at LAX, developed through a public private partnership procurement with consortium LAX Integrated Express Solutions, known as LINXS, has been plagued by years of delays and disputes between the developer and Los Angeles World Airports, the city agency that runs LAX.
The California Municipal Finance Authority, a conduit, issued $1.2 billion in automated people mover project senior lien revenue bonds in 2018 for LINXS.
Fitch
The bonds have been at speculative grade since 2024, a year after the original projected opening date of the project.
Lehman said all of the bond money has already been used for construction of the project.
"So very little money is needed to get the project started and switch it on," Lehman said. "So the lenders don't have any money at risk as far as what is needed to pay the project costs."
Buying time
The reasoning behind bringing the lender and construction longstop dates together is to give the developers more time, because they are still negotiating a settlement with Los Angeles World Airports, and moving the date to December averts having a technical default triggered in October.
Earlier in the year, the developers tried to do a final commissioning test, but some problems came out of the testing period, Lehman said.
"They have been troubleshooting some problems, but could start the project in a matter of weeks," he said. "But there is a dispute about the interconnection agreement with the Los Angeles Department of Water and Power, as to who is responsible for signing those agreements and LAX hasn't signed those contracts yet."
If the project were delayed beyond December, that would need LAWA's consent to sign off, not just the private developers, he said.
Recent Litigation
The most recent Fitch downgrade came after LINXS filed a lawsuit against the city of Los Angeles on July 9 in Los Angeles County Superior Court over electrical monitoring equipment delays and unpaid claims.
Fitch assigned the negative outlook because of the potential for further delays to breach the current long-stop dates, which could trigger a technical default, according to analysts.
On Sunday, LINXS announced in
The project has been more than 99% complete for quite some time, but the final stretch has been daunting.
"We are monitoring this frequently," Lehman said. "It's really one where the construction risk itself is very, very narrow in terms of what remains to be done."
The biggest hurdle from a ratings standpoint is the disputes between the developers and LAX, including the lawsuit filed against the airport in July.
"From our view, the judicial system doesn't move on their rulings at the same speed to match the pitch points of contract agreements," he said.
While an earlier settlement, reached by the developer and LAX a few years ago, allows for the completion of the project, and the project concept was strong enough for Fitch to initially assign an investment-grade rating, the dispute could delay operations and trigger a bond default.
There is only enough money to carry them into early to mid-2027 to cover future cost requirements including debt service, Lehman said. Plus, there are already interest rate requirements on the bonds being paid, he said.
"The best case scenario if they start the 30-day commissioning (test ahead of operations) by the end of the month," Lehman said. If it meets all the testing requirements successfully and they reach a utility agreement by Dec. 8 and service to the public begins on that date, "that's the best case scenario, but it's very tight."
The Bond Buyer
