Fitch to Monitor Indiana Finance Auth's PABs Following Completion Delays & Isolux Downgrade
Fitch Ratings is actively monitoring the Indiana Finance Authority's private activity bonds (PABs, 'BBB-'/Rating Watch Negative) issued on behalf of I-69 Development Partners LLC (I-69) due to the current eight-month delay in achieving substantial completion of the I-69 construction project.
Delay risk is heightened by the financial deterioration of Isolux Corsan SA (Isolux). Fitch downgraded Isolux, the parent company of I-69's construction contractor Corsan-Corviam Construccion SA, to 'CC' on April 28, 2016, reflecting Isolux's increased possibility of a near-term debt restructuring.
On April 7, 2016, Fitch downgraded the Indiana Finance Authority's PABs to 'BBB-' on Rating Watch Negative, which reflected the deteriorating credit quality of Isolux coupled with the I-69 project's projected eight-month delay in substantial completion. The revised substantial completion date is the result of delays in obtaining necessary permits and non-payment from the contractor that led to some sub-contractors demobilizing from the site. Payment issues have since been resolved, and the subcontractors have recommenced work, but the project continues to lag behind schedule.
Fitch believes the revised substantial completion date of June 28, 2017 will be challenging to meet. Based on the revised cash-flow schedule, Isolux is substantially behind the anticipated expenditure curve. In April and May, actual drawdowns, a means Fitch uses to measure construction progress, fell over 60% below the scheduled amount. Actual drawdowns for the month of June were nearly $10 million compared to a scheduled drawdown of approximately $20 million. In total, the project is behind the anticipated cumulative drawdown by approximately $38 million, which is over 10% of the entire contract value. Additionally, agreements required to start work on certain sites are still undergoing negotiations.
Significant construction progress (70-80% completion) in the next three months is critical in order for the project to meet its revised substantial completion date of June 28, 2017. Fitch will evaluate the status of the project at the end of the summer construction season. Unless significant construction progress occurs during this time period, negative rating action is likely. Fitch notes that the longstop date under the concession agreement is Oct. 31, 2017, which provides a minimum of an additional four months of cushion for the concessionaire to complete the project.
Fitch will continue to closely monitor further progress on the project as well as developments relating to the credit quality of Isolux.
For additional details, see:
--'Fitch Downgrades Indiana Finance Auth's PABs to 'BBB-' on Rating Watch Negative' (April 7, 2016);
--'Fitch Downgrades Isolux to 'CC'; off Negative Watch' (April 28, 2016).
Additional information is available on www.fitchratings.com
Fitch Ratings, Inc.
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New York, NY 10004
Sandro Scenga, +1 212-908-0278