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Rating Action:

Moody's affirms Baa3 on NTE Mobility Partners Segments 3 LLC's Senior PABs and Sub TIFIA Loan with a stable outlook

29 Mar 2019

Approximately $805 million of debt obligations affected

New York, March 29, 2019 -- Moody's Investors Service ("Moody's") has affirmed both the Baa3 rating on NTE Mobility Partners Segments 3 LLC's $274 million Series 2013 Senior Lien Revenue Bonds (NTE Mobility Partners Segments 3 LLC North Tarrant Express Managed Lanes Project) issued by the Texas Private Activity Bond ("PABs") Surface Transportation Corporation's and the Baa3 rating on the $531 million Transportation Infrastructure Finance and Innovation Act ("TIFIA") Loan with the United States Department of Transportation. The outlook is stable.

Outlook Actions:

..Issuer: NTE Mobility Partners Segments 3 LLC

....Outlook, Remains Stable

Affirmations:

..Issuer: NTE Mobility Partners Segments 3 LLC

....Subordinate Bank Credit Facility, Affirmed Baa3

..Issuer: Texas PAB Surface Transportation Corporation

....Senior Secured Revenue Bonds, Affirmed Baa3

RATINGS RATIONALE

The Baa3 ratings are supported by the projected high demand potential for the managed toll lanes given the significant all-day traffic congestion along the corridor at present, and the supportive economic indicators within the service area that should continue to spur traffic growth in the region. These factors support the relatively strong forecasted financial metrics during operation, which are needed given the limited operating profile. The metrics also benefit from the support of the subordinated and back-ended TIFIA government funding and the relatively high degree of equity contribution. Along with the generally supportive concession terms and lender protections, these considerations help to mitigate uncertainty regarding users' appetite for the high projected toll rates and the potential volatility in traffic levels and revenue facing the project. The managed lanes are now open to traffic and actual revenues for 2018 exceeded budgeted revenue for the year and management notes that corridor traffic exceeds pre-construction volumes by over 30%. The ratings also incorporate an assessment of the project sponsors' global experience in the sector.

The ratings are tempered by the direct competitive presence of the free general purpose lanes that run parallel to the managed toll lanes along the corridor. While traffic growth appears to be strong in the region, the project is tempered by the lack of ramp-up history for similar facilities in the U.S. and the uncertainty around user willingness to pay the forecasted tolls are factored into the ratings. In addition, the managed lane projects in Texas allow trucks, whereas other managed lane projects do not. Thus, there is greater uncertainty as to a commercial truck operator's value of time and propensity to pay high tolls during congested periods compared to a passenger car driver.

The rationale for the Baa3 rating on both the PAB debt and TIFIA loan can be attributed to the defined events of default for both debt liens, and the 'springing-lien' provision for TIFIA debt. We note that the debt service on the TIFIA loan is subordinate to that of the PABs and TIFIA has a subordinate claim on the collateral relative to the PAB bondholders. However, the ability of the TIFIA loan to become pari passu with the senior debt given an event of default under the PAB loan agreement that causes an immediate acceleration, or other bankruptcy related event that is not resolved within the stated grace period, minimizes the loss given default differential between the PAB debt and TIFIA loan in such a situation, and hence results in the same rating level.

RATING OUTLOOK

The stable outlook reflects our view that traffic and revenue will continue to ramp-up in line with original expectations, which will produce financial metrics commensurate with the current ratings.

FACTORS THAT COULD LEAD TO AN UPGRADE

• Full ramp-up is complete

• Managed lane performs close to or exceeds Moody's base case forecast on a sustained basis

FACTORS THAT COULD LEAD TO A DOWNGRADE

• Ramp-up is notably longer or lower than originally expected

• Managed lanes underperform Moody's base case forecast

LEGAL SECURITY

The bonds are secured on a first priority lien in and over the collateral, which includes the Issuer's rights, title and interest in the Facilities Agreement, toll revenues and project accounts; a pledge of the holding company of its membership interest in the Issuer, and a mortgage on the leasehold interest in the project. The TIFIA loan has a subordinate lien on the same security, except following a bankruptcy related event, in which case the TIFIA lien will spring to parity with that of the senior bonds.

The rate covenant is 1.30 times debt service coverage on the senior PABs and subordinate TIFIA loan, but allows for the use of reserve fund draws in the calculation and only considers TIFIA mandatory payments. The TIFIA loan has a 35-year maturity from the date of Substantial Completion and has no required interest payments for the first five years. The TIFIA debt service reserve account (DSRA) is sized to be $27.4 million until five years after Substantial Completion, which will be until 2023. Thereafter the TIFIA DSRA will sized to cover 12-months of mandatory debt service. While initially cash funded, the DSRA can be funded with a letter of credit from a bank rated A3 or higher by one rating agency. The project has a standard third party administered cash waterfall, with TIFIA mandatory debt service being paid after the principal on the senior debt is paid and prior to the major maintenance reserve account (MMRA) and DSRA being filled.

Additional debt may be issued for several purposes, including project completion, debt refinancing, sponsor distributions, project improvements, and debt replacement. Unique to this project is the ability for the sponsors to issue additional debt for dividend distributions, which is a credit weakness. The new debt for distributions can be used if 50% of the new proceeds are used to pay down the outstanding TIFIA loan and an independent engineer confirms that a minimum 1.3 times debt service coverage ratio for all debt will be achieved in every year of the remaining life of the bonds. Notwithstanding the required 50% TIFIA debt reduction, this is a weakness given the calculation of the debt service coverage ratio that allows for the use of undrawn MMRA and DSRA balances to meet the coverage test.

PROFILE

NTE Mobility Partners Segments 3 LLC (concessionaire) is a special purpose entity that has been awarded a 48-year, $1.3 billion publicprivate partnership concession with the Texas Department of Transportation (TxDOT) to develop, design, finance, operate and maintain the project, the most significant element of which is a 10.2 mile long managed toll lanes facility located in the median of the I-35W corridor between IH-30 and a point just south of the North Tarrant Parkway. The concessionaire owners include Cintra Infraestructuras, S.A. (53.66%); Stichting Depository APG Infrastructure Pool 2011 (28.84%), and Meridiam Infrastructure (17.50%). The Texas Private Activity Bond Surface Transportation Corporation serves as the conduit to issue bonds on behalf of NTE Mobility Partners Segments 3 LLC.

The principal methodology used in these ratings was Privately Managed Toll Roads published in October 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

John Medina
VP - Sr Credit Officer
Project Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

A.J. Sabatelle
Associate Managing Director
Project Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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