DALLAS — Anticipating a default by June, Moody's Investors Service on Tuesday downgraded the concessionaire that built the State Highway 130 toll road near Austin to Caa3 from B1, affecting $1.1 billion of outstanding debt.
The five-notch downgrade comes six months after Moody's lowered the rating four notches to B1 from Baa3. The outlook remains negative.
The downgrade of the SH 130 Concession Company "reflects the increased prospects for a payment default owing to rapid deterioration in the project's liquidity in 2013 due to substantially weaker than forecasted traffic and revenue performance since the April 2013 downgrade to B1," Moody's said.
The downgrade affects ratings for the senior bank facility with $686 million outstanding and the subordinate Transportation Infrastructure Finance and Innovation Act loan with $493 million outstanding.
The continued subpar performance has resulted in the near full use of the $35 million liquidity facility to fund the June 2013 debt service payment, analysts added.
"Moody's revised forecasts now indicate that nearly all of the $30 million of available contingent equity will be used to fund the December 2013 debt service payment and a part of the June 2014 debt service payment," analysts said.
"Absent a marked increase in traffic and revenue over the next eight months or significant remediation support from the sponsors, Moody's expects that the Project will have insufficient cash to meet is debt service payments due in June 2014."
A payment default would have uncertain near-term ramifications for the project given that multiple bank swap counterparties could terminate their swap agreements and demand a termination payment, analysts said. Swaps are currently about $107 million out of the money.
Payment default could lead to events that eventually allow TXDOT (Texas Department of Transportation) to terminate the concession agreement, which could limit the lenders' ability to take possession of the collateral.
"A concession termination would significantly increase the potential loss given default," analysts said. "However, the lenders could exercise their rights to remediate the default to prevent a concession termination."
The senior debt interest rate is fixed through swap agreements with five banks: Banco Santander, Caixabank, Bankia, Banco Espirito Santo and BNP Paribas.
The financing documents do not have a rating requirement for the swap counterparties. The concessionaire has since 2008 not relied on the swap counterparty for making interest payments given the differential in the fixed and floating rate, according to Moody's.
The SH130 Concession Company LLC built and operates newly-opened southern half of the 89-mile tollway under a 50-year agreement with the Texas Transportation Commission. The concession company is a partnership of Spanish toll road developer Cintra and San Antonio-based Zachary Construction Corp.
The more established northern half of the SH 130 tollway is managed by the Texas Department of Transportation through the Central Texas Turnpike System.
SH 130 spokesman Chris Lippincott said that the Moody's rating, originally investment grade, was needed to qualify for the TIFIA loan. After less than a year of operations, the concession company is "meeting our obligations," he said.
"A yearlong initiative by the Texas Department of Transportation to significantly subsidize truck tolls on the entire length of SH 130 is having a positive impact on traffic and revenue for the concession company, and additional long-distance signage is increasing awareness of the road," Lippincott said. "We remain confident that the recently-opened SH 130 Segments 5 and 6 will benefit our investors and the people of Texas."
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Corrected October 16, 2013 at 1:57PM: An earlier version incorrectly stated the previous Moody's rating.