Fitch Ratings is once again downgrading the private activity bonds being used to fund construction of I-69 Section 5.
The credit ratings agency says the downgrade from B to B- is the result of growing uncertainty and a more limited margin of safety for the project because of I-69 Development Partners’ failure to execute terms of a Memorandum of Understanding, or MOU, between the private developer and the state.
That MOU was reached in February and states all four lanes of traffic through Bloomington will be open by mid-August and the project will be complete by May 31, 2018. The agreement also stipulates I-69 Development Partners and Isolux Corsan will spend an additional $75 million on the project.
“Unfortunately, the funds from Isolux that were needed to move this Memorandum of Understanding forward are no longer available.”
But, Fitch says it’s unclear where additional sources of funding will come from to meet the requirements of the agreement. Director of Fitch’s Global Infrastructure group Stacey Mawson says Isolux Corsan’s parent company agreed to restructure its debt to avoid declaring bankruptcy last year, but some of the banks withdrew.
“So, unfortunately, the funds from Isolux that were needed to move this Memorandum of Understanding forward are no longer available,” Mawson says.
Indiana Finance Authority Public Finance Director Dane Huge says in a statement the current MOU isn’t canceled.
“However, recent financial developments concerning Isolux Corsan have cast doubt on the design-build contractor’s ability to cover its financial portion of the MOU,” Huge says in the statement.
The Indiana Department of Transportation and the Indiana Finance Authority are exploring options in moving forward with the completion of Section 5. I-69 Development Partners will fund $4 million to cover construction costs through June because of Isolux’s financial situation. The IFA is also making a previously pledged $27 million milestone payment for work already completed.
“These combined actions will ensure work continues on the road while viable options are explored and a new solution is determined over the next 60 days,” Huge says.
Mawson says if a new agreement isn’t reached, the bonds funding the project could be downgraded to CCC within 60 to 90 days.
“A CCC rating means that default is a real possibility,” she says.
Fitch previously lowered the rating of the bonds for the project in October because of ongoing delays with construction. The downgrade came one month after some of the subcontractors walked off the job after not getting paid.
Construction of the 21-mile stretch from Bloomington to Martinsville was supposed to be complete by October of last year.