CHICAGO — As Indiana sells $641 million of BBB-rated private activity bonds Tuesday, Standard & Poor's and Fitch Ratings held conference calls to detail the rating criteria on what are the agencies' first public ratings for an availability-payment based public-private partnership in the United States.

The triple-B ratings are anchored by the credit strength of Indiana as counterparty, as well as the experience of the private team building and operating the bridge, and the expectation that the project will be able to stick to its schedule and budget, analysts said. But the possibility of delays and cost overruns during the construction period pose risks, as does the potential of reduced availability payments from the Indiana Finance Authority.

The Ohio River Bridges is a $2.6 billion project by Kentucky and Indiana to address long-term transportation needs and congestion in the Louisville and southern Indiana region. Kentucky is pursuing a traditional design-build model that relies on toll revenue, grant anticipation revenue vehicle bonds, state funds, and potentially a federal loan.

Indiana opted for an availability-payment P3, a first for the state and one of the U.S.'s only such publicly rated deals Proceeds from Tuesday's sale of $641 million of PABs will be loaned to WVB East End Partners LLC, the company that is designing, building, and operating the Ohio River Bridge on the Indiana side. The bonds are backed by payments from the Indiana Finance Authority through the 39-year life of the project.

For analysts, the strength of Indiana is important, but the performance of the private team and the asset during construction and operation are the key ratings drivers.

The concession agreement allows the IFA to make deductions from its milestone or availability payments if there are construction delays or if the asset does not perform as expected.

That poses the chief risk for bondholders, analysts said.

The 43-month construction schedule and $763 million budget appear "tight but manageable," S&P analyst Ben Macdonald said.

"The project is most sensitive to reductions in availability payments," he added.

Fitch analyst Scott Zuchorski also noted that the "primary risk" comes from deductions in the IFA's payments.

"This is not your typical IFA appropriation bond because of the completion and operation risk that's part of the concession agreement," Zuchorski said,

The bridges will be tolled, but the toll revenue is separate from the P3 agreement, and will flow only to the state. That's another plus for bondholders, as availability payments will likely be less volatile than toll revenue. Indiana's appropriation pledge is "one of the strongest pledges that Fitch has seen in the sector to date," Zuchorski said.

Series A bonds total $445 million with interest-only through 2033 and a final maturity of 2050. Series B bonds total $196 million and consists of a bullet maturity in 2019.

Both rating agencies said debt-service coverage ratios are solid. S&P projects coverage ratios to average 1.41 times, and to be in the range of 1.27 times after 2033, when principal payments on the Series A bonds begins. Fitch's projected coverage ratio is 1.32 times.

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