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Fitch Affirms North Tarrant Express Mobility Partners, LLC Revs at 'BBB-'; Outlook Stable

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CHICAGO--(BUSINESS WIRE)--

Fitch Ratings affirms the 'BBB-' rating to the North Tarrant Express Mobility Partners, LLC's (NTEMP) approximately $400 million senior lien revenue bonds issued by the Texas Private Activity Bond (PAB) Surface Transportation Corporation. Fitch also affirms the 'BBB-' rating to the NTEMP's approximately $650 million Transportation Infrastructure Finance and Innovation Act (TIFIA) loan. The Rating Outlook is Stable.

KEY RATING DRIVERS:

--Strategic Asset Location With Competing Alternatives: The North Tarrant Express project is a key route connecting the greater Fort Worth, TX area with the city of Dallas and the Dallas-Fort Worth Airport. This strategic location, in conjunction with the solid economics of the service area, has benefited from considerable population and employment growth over the last decade. However, the presence of free alternative competing general purpose lanes (GPLs) directly next to the managed lanes (MLs), along with uncertainty relating to the current economic recession, could materially affect the congestion on the GPLs.

--Strong Rate-Making Flexibility But Uncertain Price Sensitivity: Demonstrated traffic congestion in both directions during weekday a.m. and p.m. peak periods, weekday inter-peak, and weekend daytime provides strong ratemaking ability, although there is a limited amount of meaningful history for this type of asset class. The price sensitivity to toll rates is uncertain given the highly demand-driven nature of toll rates; however, the proposed tolls for the managed lane facility are competitively priced.

--Moderate Completion Risk: While the project is in a non-urban area, construction has to occur in an operating environment. This necessitates keeping the majority of the GPLs open during most daytime periods, the relocation of certain existing infrastructure, and the requirement that the project sponsor purchase all project right-of-way (ROW). The fixed price turn-key contract has adequate protections that mitigate completion risk at the current rating level.

--Moderate Financial Flexibility and High Leverage: The project has an estimated $20.75 million in total debt per lane mile (senior debt plus TIFIA loan), despite significant public contributions and sponsor equity. In addition, net debt to cash flow available for debt service is high in 2016 at 25 times (x) and declines to 18x in 2017. No future borrowing is expected. The financial results indicate a loan life coverage ratio of 1.6x in 2015 and a minimum project life coverage ratio of 2.2x that both grow over time.

--Debt Structure: The first lien and TIFIA structure is typical for this type of project. Debt is all fixed rate with no refinance risk. While the leverage and debt service coverage tests in the equity contribution agreement are weak, a rating trigger exists whereby equity contributions would be met through a letter of credit should Cintra's financial health deteriorate (Ferrovial, S.A. rated 'BBB-' by Fitch).

--Infrastructure Renewal And Replacement: Upon completion, the project will have six new MLs, effectively doubling the capacity of the existing road and one-way frontage roads will be added.

WHAT COULD TRIGGER A RATING ACTION:

--Successful ROW acquisition associated with the project and completion of the managed lanes on time and within budget.

--Operating and capital expenditures during the operational period commensurate with expectations.

--Assumed toll rate levels and the expectation that improvements to alternative free roads will not materially impact demand for the GPLs and ultimately, the MLs.

SECURITY:

The bonds are secured by net toll revenues generated from the proposed North Tarrant Expressway (NTE) managed lanes project. The proceeds of the senior PABs and TIFIA loan combined with approximately $570 million in public funds (Texas Department of Transportation [TxDOT]) and equity of approximately $420 million from Cintra Infraestructuras, S.A (Cintra); Meridiam Infrastructure Finance S.A.R.L (societe a responsabilite limitee) (Meridiam) and the Dallas Fire and Police Pension System will be used to fund the construction of segment 1 and segment 2W the NTE managed lanes project in Texas.

CREDIT UPDATE:

Segment 1 construction will consist of two MLs and an additional GPL in each direction of Interstate Highway (IH) 820 (which runs east-west), and segment 2W construction will consist of three MLs in each direction on State Highway (SH) 183 (which runs east-west). NTEMP is a single purpose entity comprised of the aforementioned equity partners and has been granted a winning a proposal by TxDOT to develop, operate, maintain, and toll the North Tarrant Managed Lanes project for a period of 52 years pursuant to a comprehensive development agreement.

The design-build contractor, Bluebonnet Contractors (BBC), initiated construction activity on Oct. 28, 2010, slightly ahead of the contract-specified date of Nov. 10, 2010.

NTEMP has indicated the design and construction phases are on schedule with the June 2015 completion deadline. As of September 2011, all roadway and drainage design packages have been submitted to at least pre-final stage. Most have been issued for construction and several bridge and retaining wall packages remain to be submitted. As of October 2011, the project design is 91% complete and all anticipated design packages are expected to be complete by early 2012. In addition, approximately 8% of the construction has been completed. The project is on schedule and is expected to be completed as planned. Actual drawdown is $353.101 million, less than projected ($365.553 million); at Fitch's last review, the actual drawdown was also less than projections.

NTEMP has successfully obtained final working possession of 100% of parcels, excluding complex parcels and 2 Oncor parcels (50 & 99), therefore satisfying the contractual obligation of ROW Milestone 2 delivery to the Contractor. With 96% of the 399 parcels acquired through the end of September 2011, expenditures are approximately $10 million below budget estimates.

BBC began construction work on both the west and east segments of the IH 820/IH 35W and SH 183/SH 11 interchanges, respectively. Fly-over bridges are being built on the west segment to provide connectivity to the MLs while ROW and traffic detour work began on the east segment. By July 2011, BBC completed the corridor's first bridge bent and the substructure on the west segment and by September 2011, NTEMP indicated the eastbound frontage road from the interchange on the west segment will soon open to traffic which will clear the way for demolition of the existing frontage road and construction of the eastbound GPLs. On the east segment, BBC has been implementing a long-term traffic control zone which once completed, will shift mainline traffic to the south allowing construction of more than one mile of westbound GPLs. Portions of east and westbound GPLs have been paved and temporarily connected to the existing main-lanes.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Rating Criteria for Infrastructure and Project Finance' (Aug. 16, 2011);

--'Rating Criteria for Toll Roads, Bridges, and Tunnels' (Aug. 5, 2011).

Applicable Criteria and Related Research:

Rating Criteria for Infrastructure and Project Finance

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648832

Rating Criteria for Toll Roads, Bridges, and Tunnels

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=646421

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Fitch Ratings
Primary Analyst
Emari Wydick, +1-312-606-2308
Director
Fitch, Inc.
70 W. Madison St.
Chicago, IL 60602
or
Secondary Analyst
Chad Lewis, +1-212-908-0886
Senior Director
or
Committee Chairperson
Cherian George, +1-212-908-0519
Managing Director
or
Media Relations
Sandro Scenga, New York, +1-212-908-0278
sandro.scenga@fitchratings.com

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