OREANDA-NEWS. Fitch Ratings has affirmed the 'BBB-' rating on the 95 Express Lanes LLC's (95 Express) approximately \$242 million senior private activity bonds (PABs), issued through the Virginia Small Business Financing Authority. Fitch has also affirmed the 'BBB-' rating for 95 Express' approximately \$300 million Transportation Infrastructure Finance and Innovation Act (TIFIA) loan. The Rating Outlook is Stable.

KEY RATING DRIVERS

The ratings reflect the newly opened managed lanes (ML) project's location within a congested commuting corridor along highly urbanized counties in Northern Virginia/Washington, D.C. area. In Fitch's view, regional macroeconomic demographics remain sound and early ML ramp-up performance continues to support prospects to yield toll revenues in-line with Fitch cases at closing. The project's \$35 million ramp-up reserve and the flexibility offered by the debt structure provide added protection during ramp-up. The rating affirmations reflect the completion of construction works at the end of December 2014, on schedule and on budget.

Solid Service Area with Strong Commuter Base - Revenue Risk (Volume): Midrange

The strategic location of the project in a service area with high wealth levels and limited viable alternatives for commuters is a key strength. The general purpose lanes have high levels of congestion in peak commuting periods. While MLs projects are more sensitive to economic downturn, this risk is partially offset by strong regional demographics, high congestion levels and the relative stability of traffic volumes during the recent recession. MLs operate in the same direction as, and on similar schedule to, the previous reversible high occupancy lanes (HOV).Growing familiarity with MLs in the area in conjunction with only moderate increase in overall capacity (about 17%) somewhat mitigates ramp-up risk attributed to multiple access and egress points along the project and lane reversibility. While the project is exposed to elevated volumes of toll-free vehicles with three passengers or more (HOV3+), this risk is partially mitigated by Virginia Department of Transportation (VDOT) compensation provisions when certain thresholds are exceeded.

Uncertain Price Sensitivity - Revenue Risk (Price): Midrange

95 Express will maintain a dynamic pricing policy on the MLs to manage traffic throughput and maximize revenues. Given the limited operating history of MLs, there is uncertainty associated with the optimal toll rate related to the assumed time savings; however, the aforementioned strong demographics should support moderate-to-high toll rates. Still, there exists a significant uncertainty associated with price sensitivity to increasing toll rates, particularly in a prolonged weak economic climate. Fitch expects the project to generate the majority of its revenue during peak and shoulder peak periods when pricing power is the greatest.

Infrastructure Risk Mitigated by Tail - Infrastructure Renewal and Replacement: Stronger

The project benefits from newly constructed reversible MLs. The presence of a five year rolling forward-looking maintenance reserve mitigates risk relating to maintenance requirements. The long, 40-year debt free tail after TIFIA loan maturity further mitigates asset reinvestment risk.

Fixed Debt and Solid Covenants - Debt Structure: Midrange

The debt service profile consists of fixed-rate debt with no refinance risk. Senior debt is back-loaded with principal amortization scheduled to begin in 2030. The TIFIA structure includes significant flexibility between mandatory and scheduled principal and interest payments in the event that traffic and revenue projections do not materialize. Senior reserves are adequate at the greater of 12 months senior interest or nine months debt service. TIFIA debt service reserve equal to 12 months of interest will be funded after the capitalized interest period. In addition, a minimum balance in the ramp-up reserve equal to nine months of TIFIA mandatory debt service is required to be maintained.

Moderate Financial Flexibility, High Leverage

Under Fitch's base case calculated at financial close(not including the ramp-up reserve), the minimum debt service coverage ratio (DSCR), including senior and TIFIA mandatory debt service is 1.71x. Fitch's rating case yields minimum DSCR, including senior and TIFIA mandatory of 1.55x (in 2017). TIFIA scheduled is also fully amortized, with some deferral in both cases. Given the TIFIA flexibility, sufficient financial cushion to deal with weaker conditions exists on both liens of debt. The project is reliant on future revenue growth (in excess of inflation) to support its escalating debt structure, which may be exacerbated by any necessary TIFIA scheduled debt service deferrals.

Peer Group

The closest peers from Fitch's rated portfolio include other ML facilities along arterial corridors that are highly congested, particularly during peak hours such as North Tarrant Express Mobility Partners MLs (Segment 1 & 2) in Texas and Riverside County Transportation Commission's (RCTC) MLs in California which also serve areas with relatively strong demographic characteristics and limited alternative routes. Despite some differences in tolling mechanisms, policy and lane configuration, Fitch believes all three facilities should, in the medium term, build up moderate-high pricing power and be in a position to levy relatively high toll rates of over \$0.50 per mile (real) in peak periods, on average.

RATING SENSITIVITIES

Negative - Longer than expected ramp-up that stretches liquidity support, or post-ramp up traffic and revenue performance at or below Fitch's rating case on a sustained basis.

Negative - Operating costs consistently higher than expectation, or the incurrence of material additional capital investment charges to those currently anticipated.

Positive - Sustained traffic and revenue performance materially above Fitch's expectations with no additional debt issuance.

SECURITY

The senior lien revenue bonds are secured by a first-priority lien on project net revenues and the TIFIA loan is secured by a second-priority lien on project net revenues. The priority shares of the TIFIA loan will spring to parity with the senior secured obligations and any other permitted senior secured indebtedness upon the occurrence of a bankruptcy related event.

CREDIT UPDATE

Senior PABs and TIFIA loan proceeds were used to fund the project, along with approximately \$252 million in equity contribution, 90% of which was provided by DRIVe USA Investments LLC (Transurban Finance Company Pty Limited's senior secured debt rated 'A-') and 10% provided by Transurban Express Lanes LLC (wholly owned subsidiary of Transurban), and a public sector contribution of approximately \$83 million from VDOT.

Construction activity commenced in August 2012 and substantial completion was achieved on schedule, on December 29, 2014 when tolling operations began. The overall construction timing and costs have come in in-line with expectations. Ongoing close-out activities and punch-listing will continue until final acceptance expected in the summer. The design-build contractor has invoiced approximately \$725 million of which \$717 has been paid and the remaining balance is pending from Virginia Department of Transportation (VDOT) and TIFIA. There are no remaining capital contributions and the contingent equity of \$28 million was not used and this commitment was released upon substantial completion. The \$35 million ramp-up reserve and \$1 million major maintenance reserve accounts were funded in November 2014 with the final scheduled capital contribution. The project company has continued to make \$6 million semi-annual bond interest payments through construction and the \$12 million debt service reserve account has remained fully funded since closing.

95 Express Lanes LLC is a special purpose vehicle created for the development, design, finance, construction, maintenance and operation of managed high occupancy toll (HOT) lanes along I-95 within the existing HOV corridor that has been expanded on the southern end. The project is fully reversible and, similar to other HOT lane projects the concessionaire will constantly manage the number of vehicles within the HOT lanes using real time dynamic pricing. Vehicles traveling within the HOT lanes with three or more people with a valid transponder will travel for free, while all other vehicles will be required to pay a toll (buses, motorcycles and /official emergency vehicles are exempt).

The principal agreement between VDOT and 95 Express is the concession agreement (CA) through 2087, which outlines the major contractual provisions of the project, operations and maintenance and long-term capital requirements. Fitch views the CA between VDOT and 95 Express as a strong document that fairly allocates project risks, protects lenders, and also provides VDOT with the flexibility to deal with changing circumstances. Meanwhile, construction risk is allocated to the design-build contractor, Fluor-Lane 95 LLC, through the design build contract and to the Tolling and Traffic Management Systems (TTMS) contract is under the design build contract; The TTMS subcontract is being undertaken by Transurban.

While 95 Express bears traffic risk, the CA requires VDOT to provide 70% of the average tolls paid by toll-paying vehicles during the applicable time period if HOV usage of the HOT lanes exceeds predetermined thresholds. However, VDOT is not required to compensate after the earlier of the 40th anniversary of financial close or the date on which the Concessionaire achieves a cumulative IRR of 19.75%. Given the high level of HOV-3 in the area, Fitch views this protection favorably.

Transurban management has publicly stated that the project is performing in line with their expectations. Data reported for the first six weeks of operations shows weekday revenues averaging roughly \$105,000. Updated traffic and revenue analysis was not completed for this review and, while it's too early to draw conclusions with respect to ramp-up development, performance so far seems to support Fitch's initial assumptions.