OREANDA-NEWS. Fitch Ratings has affirmed the 'BB+' rating for Toll Road Investors Partnership II (TRIP II) Dulles Greenway project's approximately \\$1 billion in outstanding revenue bonds series 1999 and 2005. The Rating Outlook is Stable.

The rating reflects TRIP II's relatively high leverage and back-loaded debt structure extending to 2056, combined with expected thin coverage and dependence on future toll increases despite already above-average toll rates. Revenue risk is partially offset by the presence of healthy reserve balances as well as cash-trap triggers and flexibility afforded by the debt structure. In Fitch's opinion, continual rate increases going forward, translating into sustained revenue growth, will be needed as the revenue growth breakeven rate, excluding unknown future capex obligations, is 0.64%. The Virginia State Corporation Commission's (SCC) approved formulaic toll increases add more certainty through 2020; however, some political risk surrounding the project's future tolling practices may remain.

KEY RATING DRIVERS

Revenue Risk - Volume: Midrange
Solid, Competitive Service Area: Dulles Greenway's metro DC service area supports strong inherent demand and has long term growth potential despite housing-induced weakness experienced during the recent economic downturn. Dulles Greenway traffic, which is primarily commuter in nature and has experienced declines back to 2006, has in part been affected by improvements in alternative routes and a series of significant toll increases. Dulles Greenway continues to be subject to some risk from the expansion of free alternatives and implementation of mass transit.

Revenue Risk - Price: Weaker
Limited Rate-Making Flexibility: Economic rate-making ability is moderately limited; however, the negative effects on demand from rate increases have historically been minor. Congestion and non-peak toll rates per mile of \\$0.37 and \\$0.31, respectively, are on the higher end of Fitch's rated portfolio; however, they are viewed as comparable to recently-built or privately-owned peers. Scheduled annual increases through 2020 have been approved by the SCC, with the most recent in March 2015. Revenue maximization during a sustained weak economic environment may be constrained; especially when debt tenor and escalating obligations are considered.

Infrastructure Development & Renewal: Midrange
Manageable Capital Works: Dulles Greenway is a relatively young asset with a manageable six-year capital improvement plan through 2020, with over 70% of the \\$14 million plan allocated to resurfacing. Based on projected levels of traffic and due to historically sluggish development activity, additional construction works under existing agreements are not expected to occur over the medium-term; the amounts and timing of these construction obligations are currently uncertain.

Debt Structure: Midrange
Back-Loaded Debt; Flexible Amortization Structure: The mandatory early redemption debt service profile steadily increases to maximum annual debt service of \\$84.7 million at final maturity in 2056, reflecting 0.78% annual growth. The structure provides flexibility to mitigate potential near-term shortfalls in revenue to meet planned payments in the form of lower principal prepayments on the series 2005 debt and two triggers for cash trapping. However, a continued deferral of planned debt repayment would cause obligations to balloon in the latter years of the project's life. Current cash-funded reserve balances, of more than \\$91 million, provide some protection.

Financial Metrics
High Leverage; Tight Coverage: Leverage is high, in the high 14x range. The facility is dependent on continued toll rate increases and revenue growth through maturity to maintain minimum coverage levels at or above 1.25x. While the minimum debt service coverage threshold has been violated in recent years, a trend that is likely to continue in the near-to-medium term, the requirement to annually trap excess revenue when the threshold is breached somewhat mitigates this factor.

Peer Group: TRIP II's peers include similar commuter-based facilities such as North Carolina Turnpike Authority's Triangle Expressway System (Triangle Expressway, rated 'BBB-'/Outlook Stable by Fitch) and San Joaquin Hills Transportation Corridor Agency (SJHTCA, 'BBB-'/'BB+'/Outlook Stable). Dulles Greenway and SJHTCA share similar franchise strength, as Triangle Expressway is still in ramp-up. TRIP II's leverage is comparable with its peers but benefits from a lower breakeven growth rate, accounting for the early redemption schedule. Long-term pricing power for all three assets is either limited or unknown at this time.

RATING SENSITIVITIES

Negative - Revenue Growth: The project's inability to sustain revenue growth above an annual rate of 4% in the near term;

Negative - Tolling Flexibility: Changes in the pricing regime resulting in reduced overall tolls and/or lower than expected toll increases;

Negative - Operational Performance: O&M and improvement expenses materially above expectations;

Negative - Increased Competition: Further capacity enhancements on competing free routes or significant diversions resulting from the Dulles Metrorail project;

Positive - Traffic Growth: A material, and sustained, improvement in financial metrics due to traffic growth.

CREDIT UPDATE

Since the last review, per Greenway officials, there have been no significant improvements in the alternative free routes and none are presently expected. Formal construction on Phase II of the Dulles Metrorail Silver Line should begin this year and take five years to complete. Phase II of the project will expand the Metrorail to Dulles with three stops in the eastern portion of the county.

Loudoun County, located west of Washington, D.C., is among the fastest growing counties in the country. Population, estimated at 363,050 in 2014, nearly doubled during the last decade and is expected to continue growing, albeit at a slower rate, as development related to Dulles International Airport and the nation's capital attracts jobs to the county. While the county maintains significant agricultural activity and open land in its western portion, the eastern portion has become increasingly developed - benefitting Dulles Greenway - with tremendous single- and multi-family and commercial real estate development. According to county forecasts through 2040, the population is expected to grow 1.14% annually while housing units are expected to grow 1.34% annually.

This recent corridor growth has supported the Greenway's traffic profile in recent years. Traffic during fiscal 2014 (ending Dec. 31) grew 3.0%, to 17.68 million transactions, and is currently up an additional 4.7% through July, representing a conservative year-end Fitch-estimate of 18.51 million transactions. Traffic hit a 10-year trough in fiscal 2011, at 16.95 million transactions, but has since grown 1.43% annually.

The county's wealth indicators are well above state and national averages, and unemployment remained low at 4% as of February 2015. The county's median household income is more than double (230%) the national average and 92% higher than the state average. As traffic on the Dulles Greenway is primarily driven by commuters, revenue performance will largely be dependent on elasticity of demand and the economic performance of the region.

Revenue has continued to grow due to annual toll increases, despite the 10 year traffic decline and only slight, recent recovery. The most recent of these toll increases, of 2.8%, occurred in March 2015. Revenue grew 5.2%, to \\$78.47 million, in fiscal 2014, and is currently up an additional 7.6% through July, representing a conservative year-end Fitch-estimate of \\$84.44 million. Comparing a similar three year historic period as traffic, revenue has grown 5.6% annually since the traffic low in 2011. Fitch views favorably the scheduled toll hikes and the continued acknowledgement of the SCC that TRIP II should be allowed to raise rates to comply with covenants to bondholders as it adds certainty to the amount and timing of increases through 2020. Additionally, the inflationary nature of the increases moderate the political risk associated with future toll increases.

Operating costs during fiscal 2014 held relatively consistent with fiscal 2013, moderately decreasing 1%, after growing 14% during the prior year related to increased property tax and administrative costs. Property tax increases are allowed to be passed through via ad hoc toll increases in order to offset them, noted by last year's additional three cent toll increase for payment of increased local property taxes to Loudoun County and the Town of Leesburg.

Debt service coverage in fiscal 2014 remained constant with the prior year's 1.09x which is calculated using the Planned Mandatory Early Redemption Schedule. Using the initial scheduled debt service, coverage was 1.78x. The Planned Early Redemption Schedule uses excess funds to defease the series 2005 bonds prior to their maturity in order to smooth the debt service profile. Leverage is currently in the 14.5x range and Fitch anticipates coverage to remain in the 1.05 - 1.10x range in the near term. On Feb. 15, 2015, TRIP II redeemed \\$24.2 million of the 2005A bonds in accordance with the Mandatory Early Redemption clause contained in the Fourth Supplemental Indenture.

Fitch's base case assumes traffic growth of less than 1% from 2014 and in this scenario actual debt service coverage based on the mandatory redemption schedule would remain below the minimum coverage level requiring continued trapping of cash in the near term but then grows to over 1.25x in 2019, calculated without giving credit to the effects of the early series 1999 redemptions pursuant to the Seventh Supplemental Trust Agreement; and, per that calculation, TRIP II would be able to make distributions to investors. Fitch notes that the flexibility of the debt structure allows for lower scheduled debt service payments, which provides some relief in the near term but only increases the burden in the back end. Under a rating case that contemplates flat-to-declining traffic, coverage ratios border 1.0x over an extended time period. Should this traffic profile play out, and be viewed as more permanent, negative rating action would be likely.

TRIP II is the special purpose company that owns the Dulles Greenway. The Dulles Greenway is a six-lane, 14-mile, limited access toll highway in Loudoun County, Virginia, a suburb of Washington, DC, connecting Dulles International Airport with US-15 in Leesburg. It serves as an extension of the state-owned Dulles Toll Road, which connects Dulles Airport and other high density employment centers in the corridor to the rest of the Washington metropolitan area. The two toll roads connect at a toll plaza, where drivers pay a single toll that is divided by the two operators.

SECURITY

The senior bondholders have a first priority lien on the security interest within the Trust Estate which includes all of the rights to net revenue, real estate interest, rights under the easements and rights, title and interest in the equipment.