OREANDA-NEWS. Fitch Ratings has affirmed the 'BBB+' rating for approximately $482.3 million series 2013A (long-term private activity bonds [PABs]) and $194.5 million series 2013B (short-term PABs) issued by Indiana Finance Authority on behalf of WVB East End Partners LLC (WVB). The Rating Outlook remains Stable.

RATING RATIONALE
The rating affirmation is based on the project's continued construction progress despite successive weather related events, with the grantor providing relief in agreeing to extend the substantial completion date by 47 days to December 2016. Fitch views the ample 18 month cushion before the project longstop date as well as the security package within the structure to sufficiently cover delay scenarios. There also have been no material changes that would impact the revenue and expense projections used to support Fitch's base and rating case assumptions.

Fitch maintains a public-private partnership (PPP) grantor counterparty rating of 'AA' with a Stable Rating Outlook to the IFA's payment obligations for the Ohio River Bridges project. IFA's counterparty obligations are intentionally structured nearly identically to the authority's commitments for appropriation-backed debt issued on behalf of Indiana. There are parallel legal documents using similar language. Fitch views IFA and Indiana's reporting of the obligations as mixed relative to the criteria assessment, and still evolving. Availability payment PPP structures are still relatively new in the state.

KEY RATING DRIVERS
Experienced DBJV with Sufficient Security Package [Completion Risk: Midrange]: The project will be constructed via a design-build joint venture (DBJV) whose members (Walsh Construction and VINCI) are affiliates of the equity sponsors of the project. DB requirements under the PPA are passed down to the DBJV. VINCI SA (the 100% parent of VINCI Construction) has a public Fitch rating of 'BBB+'. LTA's replacement analysis shows that in the unlikely event that both contractors simultaneously default the security package is sufficient to bring in a replacement contractor to complete the project.

Operations Supported by Experienced Provider [Cost Risk: Midrange]: The assessment is derived from Midrange assessments to scope risk, cost predictability, and cost volatility & structural protections. Though significant operations and maintenance (O&M) and lifecycle (LC) responsibilities are retained by the public sector, there is moderate complexity involved in bridge and tunnel engineering. Technological risk is a factor in cost predictability. Project operations are expected to be self-performed by WVB through local contractors. VINCI Concessions has extensive experience in performing O&M obligations in PPPs around the world and will support WVB during the operation period through a technical assistance agreement. Structural protections are considered adequate with some LC reserve features and a handback reserve.

Availability and Milestone Payments Supported by Strong Counterparty [Revenue Risk: Stronger]: Payments during construction and operation of the project stem from milestone and availability payments from a highly rated counterparty, the Indiana Finance Authority (IFA; 'AA', Outlook Stable). WVB's model indicates 80% of the availability payment grows at a fixed rate of 2.5% annually while the remaining 20% is linked to the consumer price index (CPI).

Back-ended Amortization with Standard Reserving Provisions [Debt Structure: Midrange]: Debt service is interest-only through 2033 at which time debt service requirements ramp-up and debt is fully amortized in 2050. All proposed short- and long-term debt is fixed rate. The covenant package is considered adequate with a debt service reserve fund (DSRF) of six-months, equity distribution trigger of 1.15x, and additional bonds only for completion, up to 10% of original par, and refunding for cost savings. A three-year Rehabilitation Work Reserve Account (RWRA) and five-year Handback Reserve Account are required, both of which are considered standard for this type of project.

Solid Coverage Ratios: The projected 1.28x average coverage ratio in Fitch's rating case is within the Indicative 'BBB' Average Coverage Ratios in Fitch's Availability Criteria of 1.15x-1.30x. Coverage does not drop below 1.2x in the Fitch rating case. The project's exposure to cost risk with an all cost breakeven of 64% translates into a Realistic Outside Cost estimate (ROC) multiple of over 8x given a ROC of 7.5% which is the minimum for projects with Midrange Cost Risk under Fitch's Rating Criteria for Availability-Based Projects. Leverage is moderately high at 14.4x net debt/CFADS after the first year of operations.

Peers: The closest peers are I-69 Development Partners (rated 'BBB'; Outlook Stable) and NYNJ Link Goethals (rated 'BBB'; Outlook Stable). I-69 is also procured by the IFA and Goethals is a similar asset class. All three projects remain under construction with similar leverage and security packages. WVB benefits from a stronger rated contractor with Vinci rated 'BBB+', with a Stable Outlook.

RATING SENSITIVITIES
Negative:
--Construction delays beyond scheduled substantial completion and anticipated final acceptance dates.
--Significant payment deductions during operations that reduce coverage levels well below current projections.
--Considerable deterioration of financial counter-parties leading to a weakening in the financial performance of the project.

Positive:
--Successful completion and sustained operating performance could result in a higher rating.

CREDIT UPDATE
Project construction is continuing to make progress despite a number of weather related incidents, most notably successive flood and high water events in March and April of 2015, respectively. Despite setbacks from inclement weather, there is only an estimated 47 day delay to substantial completion date, now Dec. 17, 2016, as reflected by a change order expected to be executed shortly. Fitch notes that the long stop construction date is in June 2018, providing an ample period of 18 months after the scheduled substantial completion date. Project design and engineering is now 96.3% complete compared to 86.9% last year, with no design related delays. Total construction has advanced to 82.7%, compared to 55.5% last year.

The March 2015 flood delay qualified as a relief event under contract with the IFA and so the DBJV was not responsible for liquidated damages. The delay mitigation plan may include resequencing of certain projects with respect to temperature sensitive activities, as well as reconstituting certain projects as being within the scope of final rather than substantial completion. The DB contractor has demonstrated an ability to mitigate delays in the past by hastening bridge work with double shifts and progressing with remedial work following a potential four month delay caused by an insurable major rock fall event in September 2014.

The project is operating within budget with concession receivables increasing to $630.9 million from $478 million in fiscal 2015. These payments represent construction draws in accordance with the DB contract and certified by the LTA, thus confirming progress on the project. The remaining cost to complete is approximately $135 million.

Construction broadly falls into three different sections: the Kentucky Approach, Main Bridge East End Bridge, and Indiana Approach. Progress in construction broken down by each section:

Kentucky Approach: Construction is 68% complete. Blasting and excavation at the south portal of the tunnel are complete and steel erection at the Kentucky Approach Bridge has resumed. Construction between I-71 and US 42 is expected to be completed by mid-2016. A major internal milestone was achieved in January 2016 with the completion of the final liner in the southbound tunnel.

Main Bridge East End Bridge: Construction is 76% complete. Milestones relating to the construction of main span towers and superstructure erection experienced schedule slippages of 2-3 months as a result of the spring 2015 weather related events. The main span towers were completed in February 2016.

Indiana Approach: Construction is 93% complete. Milestone 4 regarding the East End Roadway from Old Salem Road Northwest was completed in November 2015.