I-69 project bonds suffer more downgrades

Persistent construction delays and financial troubles at the project's developer have led Fitch to cut the rating of debt issued to finance the $325m P3.

For the second time in four months, Fitch has downgraded the private activity bonds (PAB) issued by the Indiana Finance Authority on behalf of I-69 Development Partners, the private consortium awarded the $325 million I-69 Section 5 highway project in February 2014.

The securities are now rated BB, down from BBB-. “The downgrade reflects continued delays in construction and unresolved payment issues between the construction contractor and subcontractors,” Fitch said in a note, citing the same reasons it had in April when it downgraded the PABs from B- to BBB-. The outlook remains negative.

Originally expected to open to traffic at the end of 2016, the project is now scheduled to complete on 28 June 2017, a deadline Fitch believes will be “challenging to meet, given that the construction contractor is substantially behind the anticipated expenditure curve for 2016”.

According to Fitch, actual drawdowns, a metrics the ratings agency uses to track construction progress, fell more than 60 percent below target during the second quarter of this year. Drawdowns for the month of July are also expected to be significantly below the original target of $18.4 million.

The delays are the result of non-payment issues between the construction contractor, Corsan-Corviam Construccion, and subcontractors that have yet to be resolved.

The downgrade also owes to the deteriorating credit quality of the construction contractor’s parent company, Isolux Corsan, which is undergoing restructuring. Isolux Corsan’s rating was revised from C to Restricted Default on 3 August, “reflecting the execution of a distressed debt exchange following recent filings for forms of court protection,” Fitch said.

Part of the Spanish company’s efforts to stay in business has included divesting some of its subsidiaries, among them its road concessions business, which Canadian pension fund manager PSP Investments acquired in May and re-branded as ROADIS.

PSP declined to comment for this story.

The I-69 Section 5 project involves the design, construction, financing, operation and maintenance of a 21-mile segment of Interstate 69, connecting Bloomington in southern Indiana to Martinsville further north.

It also entails upgrading State Road 37 to an interstate highway, thanks to four new interchanges, 12 new bridge structures, and carrying out various other improvements to existing interchanges and overpasses as well as building a new operations and maintenance management centre.

“Significant construction progress (70 – 80 percent completion) in the next three months is critical,” Fitch stated. “Unless significant construction progress occurs over the next several months and the default issues are adequately addressed, further negative rating action is likely.”