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Moody's Investors Service has assigned a provisional Baa3 rating to Blueridge Transportation Group, LLC's approximately $303.3 million Private Activity Bonds (PABs) and approximately $356.8 million Transportation Infrastructure Finance and Innovation Act (TIFIA) loan. Moody's said the rating outlook is stable.

Blueridge Transportation Group, LLC is a special purpose entity that has been awarded a 52-year concession by the Texas Department of Transportation (TxDOT) to design, build, finance, operate and maintain the SH-288 highway P3 project, which consists primarily of a 10.3 mile managed lane facility along the median of SH 288 from the SH 288/US 59 interchange to south of the Sam Houston Tollway.

The concessionaire owners include:

• ACS 288 Holdings, LLC (ACS Infrastructure, 21.62%),
• S&B 288 Holdings, LLC (Shikun & Binui, 21.62%),
• InfraRed 288 LLC (InfraRed Capital Partners, 21.62%),
• Northleaf SH288, LLC (Northleaf Capital Partners, 18.03%),
• Clal Houston Road RH, LP and Clal Shoreland RH, LP (Clal, 12.11%), and
• Star America SH-288, LLC (Star America Infrastructure Partners, 5.00%).

The Texas Private Activity Bond Surface Transportation Corporation serves as the conduit issuer of the private activity bonds on behalf of Blueridge Transportation Group, LLC.

The Texas Department of Transportation (TxDOT) announced in mid March it had reached commercial close with Blueridge Transportation Group.

The deal was agreed after more than a year since Blueridge won the tender process for the toll lanes along Texas 288. The delay was due to the complexity of such a huge deal, TxDOT officials said to sources.

Based on the final agreement, construction will begin in late 2016, pushing back the opening to the second quarter of 2019. Officials initially predicted opening the lanes in early-to-mid 2018.

The total project investment is estimated at US$800 million.

Moody's said regarding the rating:

"The ratings reflect the projected solid demand potential for the project's managed toll lanes given the traffic congestion along the northern half of the project corridor at present coupled with the supportive economic indicators within the service area that should continue to spur traffic growth in the region over the long term. The investment grade ratings reflect our view of the Project's ability to generate sufficient revenues to support the proposed debt as well as its ability to withstand material downside scenarios given strong available liquid reserves, a flexible debt service repayment schedule, and a relatively high equity contribution. The rating is constrained by the high leverage that is primarily supported by revenues collected from the northern half of the road. Therefore, the leverage per mile is higher relative to other projects and more reliant on revenues collected on only half of the road."

The ratings are tempered by the uncertainties surrounding the traffic and revenue forecast, especially given the Project's unique tolling regime and the direct competitive presence of the free established general purpose lanes that run parallel to the managed toll lanes along the corridor. Managed lanes are a relatively new asset class in the United States and there is very limited performance data on which to calibrate projections. The revenue growth assumptions reviewed in the Sponsor's base case appear to be optimistic and Moody's has sensitized and stressed the assumptions accordingly. The lack of certainty surrounding the traffic and revenue forecast is balanced by the Sponsor's reasonable and flexible financing structure with supportive upfront liquidity in the form of ramp-up and debt service reserve funds that provide sufficient liquidity to support the Project through material downside scenarios.

The $66 million ramp-up reserve provides key liquidity during the initial years post construction, protecting the Project from material downside scenarios for several years. The limitations on releasing the ramp-up reserve also keeps this supportive liquidity in place until the Project is able to meet certain coverage thresholds. These considerations help to mitigate uncertainty regarding users' appetite for the high projected toll rates and the potential volatility in traffic levels and revenue facing the managed lane toll road Project. The provisional ratings incorporate an acknowledgment of the Project Sponsors' considerable experience in the sector and a view that the Project's construction risk is manageable with an adequate risk mitigation package from the Design-Build (DB) contractor.

Blueridge will build two toll lanes in each direction and upgrade the Sam Houston and Loop 610 interchanges. The company will operate and maintain the tollway until 2065.

The project includes the following:

• The design, construction, maintenance, and operation of four tolled lanes within the median of SH 288 from US 59 to the Harris County line at Clear Creek
• The design, construction, maintenance, and operation of up to eight direct connectors at Beltway 8
• The maintenance and operation of the general purpose lanes and associated facilities along the 10.3-mile section of SH 288.

Additionally, the project includes construction of direct connectors to provide access from SH 288 tolled lanes to the Texas Medical Center; eight direct connectors at Beltway 8; and rebuilds most of the I-610/SH 288 interchange.