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March 19 (The following statement was released by the rating agency)
Fitch Ratings' recent downgrade of the Regional Transportation District (RTD) Certificates of Participation (COP) bonds to 'A' with a Negative Outlook from 'A+', will not impact the rating of RTD's $398 million Series 2010 private activity bonds (PABs) rated 'BBB-' with a Stable Outlook.
The PABs were issued on behalf of Denver Transit Partners (DTP) for the Eagle Project (the project), which represents a critical part of RTD's regional transit network development plan procured through a public private partnership agreement with DTP to design, build, finance, operate, and maintain the project. Under the agreement RTD will compensate DTP through an availability payment mechanism.
To understand the credit implications of the COP downgrade on the project it is important to highlight where the availability payments fall within the RTD waterfall. The availability payments for the project are divided into two pieces: (1) the capital (debt service) portion and (2) operations and maintenance (O&M) portion. The debt service portion of the availability payment is subordinate to RTD's outstanding senior (rated 'AA+'; Stable Outlook) and FasTracks bonds (rated 'AA'; Stable Outlook) but senior to the COPs. The O&M portion of the availability payment is on parity with the COPs.
Consistent with Fitch's availability payment criteria the credit strength of the payment revenue stream from the grantor serves as an input and in most instances a cap on the overall project rating. In the case of Project Eagle a grantor revenue stream of 'A' with a Negative Outlook credit quality does not act as a constraint to the project rating of 'BBB-'. As part of its review process Fitch monitors the credit strength of the availability payment revenue stream throughout the life of the transaction to ensure the overall project rating accurately reflects the revenue risk embedded in the project. If the credit quality of the availability payment revenue stream were to decline below that of the project the project's credit rating would likely be downgraded.
In addition to evaluating revenue risk, Fitch's availability payment ratings also reflect the following: completion risk, operation risk, infrastructure renewal and replacement, as well as debt structure, all of which Fitch monitors as part of its review process. Fitch's assessment of these risks has not changed since Project Eagle achieved financial close and the project has maintained its 'BBB-' rating with a Stable Outlook.
Fitch's 'A-'; Negative Outlook rating on the COPs takes into account RTD obligations for Project Eagle as well as future projects leading to smaller margins for flexibility for operating payments. However, the credit remains in the 'A' category due to the economic base's sound underpinnings; essentiality of the leased assets; management's willingness to increase fares; and RTD's 1.2x net revenue coverage requirement for all debt obligations. This policy, which Fitch considers an important credit feature, has served to limit RTD's exposure to revenue volatility and budgetary contingencies.