Fitch downgrades I-69 project bonds

Construction delays and deteriorating credit quality at parent company level have led to a BBB- with negative outlook for I-69's PABs.

Fitch Ratings has downgraded the private activity bonds issued by the Indiana Finance Authority on behalf of I-69 Development Partners to BBB- from B- with ratings watch negative. 

Following the dissolution of the Isolux Infrastructure Netherlands partnership between Isolux and Canadian pension manager Public Sector Pension Investment Board late last year, the latter agreed to take full control of the I-69 project moving forward, including supplying the project's outstanding equity injections.   

The downgrade reflects the deteriorating credit quality of construction company Corsan-Corvium Construccion's parent, Isolux Corsan, which itself began a ratings slide on 7 December, when its credit was lowered to a B rating with negative outlook, placing the company in Fitch's “highly speculative” category. This was followed by a 12 February downgrade to B- with ratings watch negative, one notch above “substantial credit risk”.

Substantial project completion was expected by October 2016, but it has now been indicated that there will be an eight-month delay due to issues with rail and road permitting and updating, in addition to modification of a total of 404 other permits. Currently, project completion is set for 28 June 2017.

“In Fitch's opinion the material delay in substantial completion implies a greater exposure to the credit quality of the construction guarantor,” noted a statement by senior director Saavan Gatfield. Still, “Fitch believes, based on all the information it has received, that the revised substantial completion date […] is achievable given that all material permits have now been approved”.

Factors that could push the rating further down into the CCC ratings range – at which point Fitch's position would be that there is “substantial credit risk” and significant risk of default – include further contractor credit quality deterioration, further project delays and operational underperformance. The agency said that a shift to a positive outlook is “highly unlikely [during the construction period] given completion risk issues facing the project”. 

All the same, “if the project is successfully completed, positive rating migration back to its previous level will likely occur assuming no material change to the project's operating profile”, the statement said.

The agency plans to continue watching the project and any developments related to the credit quality of Isolux closely in the coming months.