OREANDA-NEWS. Fitch Ratings has downgraded the rating on approximately $398 million in tax exempt private activity bonds (PABs), series 2010 issued by the Regional Transportation District (RTD) on behalf of Denver Transit Partners, LLC (DTP) to 'BBB+' from 'A-'. The Rating Outlook is Stable.

The downgrade of the RTD bonds is the direct result of Fitch's downgrade on March 4, 2016 of Fluor Corporation (Fluor) to 'BBB+'/Stable Outlook. RTD's bond rating is directly linked to Fluor's rating, the project's contractor and operator, which guarantees completion, as well as O&M and lifecycle endeavors.

Proceeds of the series 2010 bonds were loaned to DTP to pay for a portion of the Eagle Project, critical to RTD's FasTracks regional transit network development plan, through a public-private partnership concession for project design, build, financing, operation, and maintenance (DBFOM).

Additionally, the Revenue Risk key rating driver score was revised to Stronger from Midrange, reflecting the 'A-' PPP Grantor Counterparty rating that is assigned to RTD's payment obligations for the project.

KEY RATING DRIVERS

Adequate Construction Package [Completion Risk: Midrange]
The project's construction contractor is a joint venture (JV) between Fluor Corp. and Balfour Beatty Rail, Inc., both well experienced with rail projects, and supported by joint and several performance and financial guarantees from its parents. The fixed price contract adequately mitigates construction risk through a 45% liability cap and sufficient liquidated damages to cover delay costs through to the backstop date. The 'A Line' is expected to open on April 22, 2016, while the 'G Line' is anticipated in fall 2016.

Resilient Payment Structure [Revenue Risk: Stronger, revised from Midrange]
DTP's indexed availability-based revenue stream from a high investment-grade credit quality grantor (RTD; 'A-') provides a predictable and resilient revenue stream and is fully insulated from volume and price risk. The penalty deductions mechanism incentivizes the concessionaire and its operating contractor to provide adequate service; concession termination is limited to severe underperformance.

Exposure to Operations Limited, Infrastructure Risk Well Mitigated [Cost Risk: Midrange]
The back-to-back passthrough of operating and lifecycle expenses as well as penalty deductions associated with operational underperformance to an investment-grade operating contractor for the term of the concession leaves the concessionaire well protected against operating risk. Nevertheless, the project is complex and could face significant implementation risk at the start of the operational phase. A long debt-free tail before concession expiry combined with relatively well-defined hand-back provisions and the full pass-through of lifecycle risk to a creditworthy operating contractor ensure that bondholders are well protected against hand-back and lifecycle risk.

Moderate Debt Service Coverage [Debt Structure: Midrange]
DTP's high leverage is typical for a project of this nature, and it results in a moderate debt service coverage ratio (DSCR) profile, averaging 1.38x in the concessionaire's base case, which is in line with investment-grade guidance for availability-based projects.

Peer Analysis
Fitch-rated availability payment peers include Ohio River East End Partners and Goethals Bridge Development Group. All contractors benefit from parent guarantees, but only DTP and Goethals Bridge have joint and several agreements. DTP has the longest tail at four years, which fits the transit nature of the project in comparison to 10-24 months for the other road-based transactions. DTP has the lowest minimum Fitch rating case DSCR at 1.08x while the roads boast slightly higher coverages from 1.1x-1.3x.

RATING SENSITIVITIES

Negative - Financial Performance: Material cost increases during operation that reduce coverage levels for a sustained period could pressure the rating;

Negative/Positive- Linked to Parent Guaranty: A downgrade to Fluor or a removal of its parent company guaranty would result in negative rating action; an upgrade to Fluor could result in positive rating action.

For additional information, see Fitch's press release 'Fitch Affirms Regional Transportation Dist, CO's PABs at 'BBB-'; Outlook Stable', dated May 26, 2015, available on the Fitch website, 'www.fitchratings.com'.

For more information on Fluor Corporation's recent downgrade, see Fitch's press release 'Fitch Downgrades Fluor's IDR to 'BBB+'; Outlook Stable', dated March 4, 2016, also available on the Fitch website, 'www.fitchratings.com'.