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Rating Action:

Moody's assigns (P) Baa3 to Blueridge Transportation Group, LLC's Private Activity Bonds (PABs) and TIFIA loan

17 Mar 2016

New York, March 17, 2016 -- Moody's Investors Service has assigned a provisional (P) Baa3 rating to Blueridge Transportation Group, LLC's (the Borrower, Concessionaire, or Project Co) approximately $303.3 million Private Activity Bonds (PABs) and approximately $356.8 million Transportation Infrastructure Finance and Innovation Act (TIFIA) loan. The rating outlook is stable.

Blueridge Transportation Group, LLC is a special purpose entity that has been awarded a 52-year concession by the Texas Department of Transportation (TxDOT) to design, build, finance, operate and maintain the Project, which consists primarily of a 10.3 mile managed lane facility along the median of SH 288 from the SH 288/US 59 interchange to south of the Sam Houston Tollway. The concessionaire owners include ACS 288 Holdings, LLC (ACS, 21.62%), S&B 288 Holdings, LLC (S&B, 21.62%), InfraRed 288 LLC (InfraRed, 21.62%), Northleaf SH288, LLC (Northleaf, 18.03%), Clal Houston Road RH, LP and Clal Shoreland RH, LP (Clal, 12.11%), and Star America SH-288, LLC (Star, 5.00%). The Texas Private Activity Bond Surface Transportation Corporation serves as the conduit issuer of the private activity bonds on behalf of Blueridge Transportation Group, LLC.

RATINGS RATIONALE

The ratings reflect the projected solid demand potential for the Project's managed toll lanes given the traffic congestion along the northern half of the Project corridor at present coupled with the supportive economic indicators within the service area that should continue to spur traffic growth in the region over the long term. The investment grade ratings reflect our view of the Project's ability to generate sufficient revenues to support the proposed debt as well as its ability to withstand material downside scenarios given strong available liquid reserves, a flexible debt service repayment schedule, and a relatively high equity contribution. The rating is constrained by the high leverage that is primarily supported by revenues collected from the northern half of the road. Therefore, the leverage per mile is higher relative to other projects and more reliant on revenues collected on only half of the road.

The ratings are tempered by the uncertainties surrounding the traffic and revenue forecast, especially given the Project's unique tolling regime and the direct competitive presence of the free established general purpose lanes that run parallel to the managed toll lanes along the corridor. Managed lanes are a relatively new asset class in the United States and there is very limited performance data on which to calibrate projections. The revenue growth assumptions reviewed in the Sponsor's base case appear to be optimistic and Moody's has sensitized and stressed the assumptions accordingly. The lack of certainty surrounding the traffic and revenue forecast is balanced by the Sponsor's reasonable and flexible financing structure with supportive upfront liquidity in the form of ramp-up and debt service reserve funds that provide sufficient liquidity to support the Project through material downside scenarios.

The $66 million ramp-up reserve provides key liquidity during the initial years post construction, protecting the Project from material downside scenarios for several years. The limitations on releasing the ramp-up reserve also keeps this supportive liquidity in place until the Project is able to meet certain coverage thresholds. 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 managed lane toll road Project. The provisional ratings incorporate an acknowledgment of the Project Sponsors' considerable experience in the sector and a view that the Project's construction risk is manageable with an adequate risk mitigation package from the Design-Build (DB) contractor.

The provisional (P) Baa3 rating on both the PABs and TIFIA loan is due to the defined events of default for both debt liens and the 'springing-lien' provision for TIFIA debt. The bonds will be secured by a senior lien on the Project's revenues and the concessionaire's rights under the various Project documents, including the comprehensive development agreement (the CDA, or the concession agreement). The TIFIA loan will have 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.

Moody's provisional ratings reflect our preliminary credit opinion regarding the transaction. Upon a conclusive review of the final structure and documentation, we will assign definitive ratings. A definitive rating may differ from a provisional rating if there are material changes from what has been reviewed to date.

Rating Outlook

The stable outlook reflects the expectation that construction will proceed on time and on budget and the Project will generate revenues in line with Moody's range of sensitivities.

Factors that Could Lead to an Upgrade

• The rating could face upward pressure after construction and ramp-up are complete and the Project revenues exceed forecast.

Factors that Could Lead to a Downgrade

• The rating could face downward pressure if the Project encounters meaningful delays or cost overruns during construction which cannot be passed through to the DB contractor, or if the DB contractor or the Sponsors encounter significant financial difficulties that raise questions regarding their ability to fulfill their respective obligations to the Project.

• Post construction, the rating could face downward pressure if actual traffic and revenue performance is materially below Moody's expectations with limited ability to recover before depleting all available liquidity.

The principal methodology used in these ratings was Privately Managed Toll Roads published in May 2014. Please see the Ratings 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
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Chee Mee Hu
MD - Project Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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

Moody's assigns (P) Baa3 to Blueridge Transportation Group, LLC's Private Activity Bonds (PABs) and TIFIA loan
No Related Data.
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