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Rating Action:

Moody's assigns Baa2 to LBJ Infrastructure Group, LLC's senior secured notes; affirms Baa2 on outstanding private activity bonds; outlook is stable

24 Nov 2021

New York, November 24, 2021 -- Moody's Investors Service ("Moody's") has assigned Baa2 to LBJ Infrastructure Group LLC's (LBJ) $609 million senior secured notes due 2057. Concurrently, Moody's affirmed the Baa2 on LBJ's parity $538 million Senior Lien Revenue Refunding Bonds (LBJ Infrastructure Group LLC IH-635 Managed Lanes Project) Series 2020A (Tax-Exempt) Bonds and $7 million Senior Lien Revenue Refunding Bonds (LBJ Infrastructure Group LLC IH-635 Managed Lanes Project) Series 2020B (Taxable Bonds) issued by the Texas PAB Surface Transportation Corporation. The outlook is stable.

Assignments:

..Issuer: LBJ Infrastructure Group LLC

....Senior Secured Regular Bond/Debenture, Assigned Baa2

Affirmations:

..Issuer: Texas PAB Surface Transportation Corporation

....Senior Secured Revenue Bonds, Affirmed Baa2

Outlook Actions:

..Issuer: LBJ Infrastructure Group LLC

....Outlook, Assigned Stable

RATINGS RATIONALE

The Baa2 rating reflects the managed lane's fundamental strengths as a congestion reliever in a densely populated, primarily commuter corridor in a growing economic service area in Dallas. Revenues now benefit from the managed lane's central location in a regional managed lane network. The generally supportive concession terms with a clearly defined toll rate setting mechanism that includes dynamic tolling is essential to driving long-term revenue growth as it allows the sponsors to adjust toll rates every five minutes to maintain average traffic speeds above 50 mph or traffic volumes below certain thresholds. Though LBJ's recovery has trailed similar to North Texas managed lanes, revenue collection has ranged between 83% and 91% of the same month in 2019 since April 2021.

The sound project financing features include a limitation on business activity and equity distributions, a letter of credit backed twelve-month debt service reserves account (DSRA) and a five-year forward looking major maintenance reserve account (MMRA), and lender step-in rights. The back-ended principal repayment profile poses longer term risks if traffic and revenue significantly underperforms the forecast in the long-term and while the current proposed transaction will consume much of the existing 12-year tail. However, debt service in those years are low enough to allow some future restructuring if needed.

The senior lien bonds and notes benefit from supportive features of the subordinate TIFIA loan. Scheduled TIFIA debt service can be deferred, which could occur if revenue is slow to recover from low levels during the coronavirus outbreak. TIFIA cannot become a controlling creditor as long as senior lien bonds are outstanding, effectively removing any ability to enforce a payment default.

Reserves are funded by a LC with recourse to the project, which is not as strong as a cash funded DSRA or MMRA. The LCs will be increased for both accounts following this transaction. LCs provide similar liquidity protection should very weak performance occur and a draw on the DSRA is needed as any repayments of draws on the LC are considered loans and repaid over five years. However, if the DSRA is being drawn, then there is already weak project performance, so the increased debt service associated with repaying the LC at that time will further pressure the credit at a time when it is already experiencing distress. While the annual debt service requirements would be higher if the LC is drawn, the five-year repayment timeframe provides some flexibility and time to effectuate a debt refinancing if needed. Further, given the ability to ask for an extension of the revolver two years prior to its expiration, we would expect there would be notightening before the revolver matures every five years.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

FACTORS THAT COULD LEAD TO AN UPGRADE

• Exceeding Moody's base case forecast on a sustained basis.

• Cash flow available for debt service (CFADS) exceeds maximum annual debt service (MADS) on a sustained basis.

FACTORS THAT COULD LEAD TO A DOWNGRADE

• Underperformance to Moody's base case forecast expectations.

• Increase in leverage that weakens forecast financial metrics over the concession term or refunding of senior or subordinate debt with non-amortizing debt.

OUTLOOK

The stable outlook reflects our view that traffic and revenue will continue to perform in line with forecast expectations.

LEGAL SECURITY

All obligations of LBJ Infrastructure Group LLC (concessionaire), existing and subsequent to the issuance of the 2021 Secured Notes, are secured by all real and personal property which are subject to the lien granted under the Security Documents, including (i) all of the concessionaire's right, title and interest in and to all of its tangible and intangible assets, including its interest in the Comprehensive Development Agreement, toll revenues and Project Accounts, (ii) a pledge by LBJ Infrastructure Group Holding LLC (HoldCo) of its membership interests of the concessionaire and (iii) a mortgage on the concessionaire's leasehold interest in the Project property granted by Texas Department of Transportation pursuant to the Comprehensive Development Agreement and the Lease.

PROFILE

LBJ Infrastructure Group LLC (concessionaire) is a special purpose entity that was awarded a 52-year concession by Texas Department of Transportation (TxDOT) to build, finance and operate the project, the most significant element of which is a 13.25 mile long managed lanes facility located adjacent to existing un-tolled Interstate Highways 635 and 35E near Dallas, Texas. The concessionaire is approximately 54.6% indirectly owned by Cintra LBJ LLC, 28.33% by APG Asset Management US Inc., 17.07% by Meridiam LBJ Holdings Corporation ("Meridiam"). The Texas Private Activity Bond Surface Transportation Corporation served as the conduit bond issuer on behalf of LBJ Infrastructure Group LLC.

The principal methodology used in these ratings was Privately Managed Toll Roads Methodology published in December 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1244932. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

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

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Earl Heffintrayer
VP - Senior Credit Officer
Project Finance Group
Moody's Investors Service, Inc.
600 North Pearl Street
Suite 2165
Dallas, TX 75201
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Kurt Krummenacker
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.
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