DALLAS – Almost $1.2 billion of debt dedicated to Maryland's Purple Line light rail public-private partnership project has garnered a BBB-plus from S&P Global Ratings thanks to a contractual arrangement that transfers construction and operational risks to highly rated counterparties.
The debt includes $323 million of private-activity bonds that are expected to be issued next week by the Maryland Economic Development Corp. and an $873 million federal low-interest loan under the Transportation Infrastructure Finance and Innovation Act.
The 16-mile rail system with an estimated total lifetime cost of $5.6 billion will be financed, built, and operated by Purple Line Transit Partners, an international consortium of Fluor Enterprises, Meridiam Infrastructure Purple Line, and Star America Fund.
The Maryland Board of Public Works approved a 36-year concession contract between Purple Line Transit and the Maryland Department of Transportation and the Maryland Transit Administration in early April. The contract covers six years of construction and 30 years of system operations.
The fiscal strength and construction experience of lead partner Fluor Corp., which will provide 15% of the partners' equity contribution of $140 million to the project, is the key to the project's credit rating, said Dhaval Shah, associate director of infrastructure ratings at S&P.
"The project's credit profile primarily benefits from a favorable contractual arrangement, whereby its entire construction and operational risk through the concession term is transferred under a design-build contract and an operations and maintenance contract, both supported by a parent guarantee from Fluor Corp.," Shah told reporters during a conference call on Tuesday.
The Purple Line Transit Constructors LLC design-build contractor group will include Fluor, Lane Construction Corp., and Traylor Bros. Inc. It will assume construction risk under a six-year, $2.01 billion fixed-price contract with a deadline for completion.
"The strength of the design-build contractor and its experience significantly underpins our construction assessment," Shah said.
Shah cited Fluor's successful stewardship of the recently completed first phase of Denver's $2 billion Eagle P3 rail project and its work on Virginia's growing system of P3 managed toll lanes in the Washington area.
"The construction contractor is very experienced in this type of civil-to-heavy engineering work and local conditions," he said. "The design-build contractor also benefits from a tunnel specialist [Traylor] which has overseen more than 90 miles of bored tunnels and completed much more complex tunneling than involved in the Purple Line project."
Purple Line Transit Operators LLC will operate and maintain the light rail system for 30 years. The O&M group includes Fluor, engineering design firm Alternate Concepts Inc., and manufacturer CAF USA Inc., which will build the rail vehicles.
The operators will receive availability payments of up to $150 million per year from the state through 2052 if the system maintains a 96% level of service. The state will retain all fare revenues from the Purple Line.
The state will also be responsible for up to $860 million of progress payments during the construction phase, along with a $100 million payment when work is substantially completed and another $30 million when passenger service begins.
State Treasurer Nancy Koop said Maryland does not consider the 30 years of availability payments to the partners as tax-supported debt.
Maryland's policy is to keep state tax-supported debt service at less than 8% of state revenues.
However, S&P said it would consider the payments as state-supported debt, as did Fitch Ratings.
Fitch gave a BBB-plus rating to the Purple Line PABs and TIFIA loan last week.
