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The following is a press release from Fitch Ratings: Fitch Ratings-New York/Chicago-23 July 2010: Fitch Ratings expects to assign a 'BBB-' rating with a Stable Outlook to approximately $404 million in proposed tax-exempt private activity bonds (PABs) to be issued by the Regional Transportation District (RTD, or the district) on behalf of Denver Transit Partners, LLC (DTP, or the concessionaire). The final rating is contingent upon the receipt by Fitch of final documents and legal opinions conforming to information already received and reviewed as well as the final pricing of the bonds. The PABs are expected to price in early August 2010 and the proceeds will be loaned to DTP to pay a portion of costs of the Eagle Project through a public private partnership (P3) to design, build, finance, operate and maintain (DBFOM) the project. The Eagle Project is part of the district's broader transportation capital program called FasTracks. The PABs will be secured by the base annual service payment (or availability payment) made by the RTD which is derived from sales tax revenues and is subordinate to the RTD's outstanding senior and FasTracks bonds and other required deposits. This payment source is subject to certain restrictions included in Colorado's Tax Payer Bill of Rights (TABOR) but is not subject to any appropriation risk of the RTD. The base annual service payment is sized to cover annual debt service at a minimum of 1.35 times (x) and will be subject to DTP making the system available for use. The bonds are expected to mature on Dec. 31, 2040, four years before the expiration of the Concession Agreement (CA). The 'BBB-' rating reflects DTP's predictable cash flows due to a fixed and indexed availability payment structure from a highly rated transportation entity (RTD), experienced counterparties with fixed-price back-to-back design-build (DB) and operating contracts through the life of the concession, a strong construction package with sufficient mitigants provided by the DB contractor, including a 45% liability cap on total construction costs backed by joint and several performance and financial guarantees from qualified sponsors and participants, including Fluor Corp. (rated 'A-' by Fitch), and liquidated damages sufficient to cover delay costs through the concession long stop date equal to an 18-month delay that will be supported partially by a letter of credit(LOC) equal to 6% of the design-build contract sum. In addition, the availability payment deduction regime provides an incentive to the operator to provide adequate service and limits termination of the agreement to severe underperformance. Bondholders are not exposed to patronage risk and the scope of construction does not involve significant tunneling, seismic retrofitting, or substantial relocation of existing utilities. Primary concerns include high leverage with a debt to equity ratio of 88%/12%, relatively narrow debt service coverage of total obligations if performance and availability deductions are not passed to the operating and maintenance (O&M) operator, a low debt service reserve account (equal to six months principal and interest) given the level of completion risk present in the project, and a long construction period which requires interaction with two class 1 railroads, integration with the RTD's existing system, and ongoing work at Denver Union Station (DUS). The Eagle Project forms a critical part of the RTD's FasTracks plan which was approved by voters in 2004 and includes the DBFOM of the East Corridor, Gold Line, and Commuter Rail Maintenance Facility (CRMF), and a section of the Northwest Electrification Segment (NWES). The scope of the project also entails the concessionaire to procure and install several aspects of the DUS segment and dispatch heavy rail movements. Construction of the separate transit elements within the Eagle Project will be broken out into two phases, Phase 1 and Phase 2. Phase 1 consists of the DBFOM of the East Corridor, the DUS Signals, Switches, and Rail Segment, the CRMF, one section of the NWES, and procurement of the rolling stock. Phase 2 consists of the DBFOM of the Gold Line, including the extension of the Pecos Junction of the NWES from DUS to CMRF, and the commuter rail stations along that section of the NWES. The total construction timeframe for both Phase 1 and Phase 2 is currently estimated at six and one half years at a total construction cost of approximately $1.27 billion. The availability payment (or base annual service payment) secures the bonds and provides DTP with the resources to pay the O&M contractor. Payments will be provided by the RTD to the concessionaire on a monthly basis and will be split into two portions: the Tabor-secured debt service portion and the appropriated O&M portion. The Tabor portion is payable by the RTD to the bond trustee after payments of debt service on the RTD's own sales tax revenue bonds (both the senior and FasTracks sales tax revenue bonds) but before operating expenses on the RTD's existing system. The O&M portion will be subject to annual appropriation by the RTD and will be payable on parity with the operating expenses on the RTD's existing system. Pursuant to the CA, the RTD can make deductions to the total payment if DTP fails to meet availability and performance targets. However, the portion securing the bonds is not subject to appropriation and if such deductions to the total payment occur, debt service on the bonds is paid senior to any O&M expenses of DTP. While lenders are technically protected from any performance or availability deductions since the O&M contract passes deductions down to the O&M operator, poor performance by the operator can lead to termination of the CA and can thus trigger a default on the bonds. As a result, Fitch focused its analysis on likely deductions and the resulting coverage of total obligations. The construction contract with Denver Transit Systems, LLC (a 50/50 joint venture between Fluor Enterprises, Inc. [Fluor] and Balfour Beatty Rail, Inc. [BBRI]) is a turnkey lump-sum fixed price contract containing adequate construction risk mitigants including a performance guarantee (Fluor Corp. and Balfour Beatty, LLC) and financial guarantee (Balfour Beatty plc) capped at 45% of the contract sum and liquidated damages scheduled to cover delay costs through the concession long-stop date equal to an 18-month delay. While the concession agreement and construction contract are on a back-to-back basis with Fluor and BBRI, the LOC covering 6% of the contract price (approximately $76 million) ensures that there will be no timing issues if liquidated damages are payable by the DB contractor. Similarly the operating contract with Denver Transit Operators, LLC (between Fluor, BBRI, and Alternative Concepts, Inc.) is also a turnkey lump-sum fixed price contract for the term of the concession. In Fitch's view, the contract contains adequate operating risk mitigants, including a performance guarantee (Fluor Corp. and Balfour Beatty, LLC) and financial guarantee (Balfour Beatty plc) capped at $67.9 million, as well as an LOC equal to $23 million to remain in effect until at least the final maturity of the bonds (Dec. 31, 2039). The operating contract is also on a back-to-back basis. The liability caps in both the construction and operating contracts become unlimited if the work and/or services are abandoned. Equity equal to 12% of total private capital is expected to be contributed just prior to the scheduled completion date but is covered by an LOC that will be provided at financial close. Equity partners include Fluor at 10%, John Laing Investments Ltd. (John Laing, a wholly owned subsidiary of John Laing plc) at 45% and Uberior Infrastructure Investments No. 4 Limited (a wholly owned subsidiary of Bank of Scotland plc with the ultimate parent company of Lloyds Banking Group plc) for the remaining 45%. Fitch views the participation of Fluor on the equity and construction/operation sides as positive and notes that John Laing also has experience with rail projects in the United Kingdom. The RTD expects to receive a $1.03 billion full funding grant agreement (FFGA) from the Federal Transit Administration in order to fund a large portion of its share of project costs for Phases 1 and 2. Construction for Phase 2 will commence upon the RTD issuing the Phase 2 notice to proceed (NTP), which the RTD may issue at any time prior to Dec. 31, 2011. Per the CA, the RTD should either already have funding in place or should reasonably expect to receive the FFGA in an amount equal to Phase 2 construction costs in order to issue the NTP. Unlike Phase 1, the construction payments for Phase 2 are structured to wholly cover DTP's Phase 2 construction costs. Therefore, while the completion and operation of Phase 1 does not depend upon the development and operation of Phase 2, the scope of work and level of debt associated with the project will substantially change if Phase 2 NTP is not provided. (MORE TO FOLLOW) Dow Jones Newswires July 23, 2010 14:52 ET (18:52 GMT)