Ridgeline River Crossing

Company overview

Ridgeline Crossing Partners is a special-purpose project company formed to replace the 1960s-era Ridgeline River bridge, a 1.2-mile, four-lane interstate crossing that a state department of transportation (the State, rated AA−) has classified as structurally deficient. Under a 35-year design-build-finance-operate-maintain concession, the project company builds the new bridge over about three years, then operates and maintains it for 32 years and hands it back in specified condition. There are no tolls: the State pays an annual availability payment if the bridge is open and meets performance standards.

The maximum availability payment is $88.0M in the first operating year, with 60% of it indexed to inflation (assumed 2.0% a year) and 40% fixed. The State deducts from the payment for lane closures and missed performance standards; deductions can reach 100% of the payment. Payments are subject to annual appropriation by the state legislature, with a non-appropriation termination right that requires the State to compensate senior debt in full.

Construction is subcontracted to the Arcadia–Harlow joint venture under a fixed-price, date-certain design-build contract of $860M. Operations and maintenance are subcontracted to an affiliate of one of the equity sponsors. The project company is asking for $780M of senior secured, fixed-rate debt with a 28-year amortization after completion, sculpted to a 1.30x minimum debt service coverage ratio in the sponsor's base case.

The IC question: with no traffic risk, does the package of contractor security, reserves and covenants protect the lender through construction, lifecycle spikes and a period of poor performance, and is 135 bp over Treasuries enough?

Your memo should answer

1. 01Would you lend on these terms? State your recommendation and the conditions or changes you would require.
2. 02Is the construction security package enough to cover a 12-month delay or a 15% cost overrun, and what happens if the contractor itself fails?
3. 03Assess the debt sizing: minimum and average DSCR, loan life coverage, the tail, and whether 1.30x is enough given the lifecycle spikes.
4. 04Build a downside combining deductions, higher operating costs and lifecycle overruns. When do the 1.15x lock-up and 1.05x default tests trip, and how far can CFADS fall before default?
5. 05What do appropriation risk and the termination regime mean for the lender in each termination scenario?
6. 06Is 135 bp over Treasuries enough for this risk, and what would you change in the documents?

Financials ($M)

Term sheet

Facility

$780M senior secured fixed-rate term loan to Ridgeline Crossing Partners (project company); drawn during construction

Tenor and amortization

31 years from close: 3-year construction availability, then 28-year amortization sculpted to the sponsor base case; 4-year tail before concession end

Pricing

Fixed 5.60% (30-year Treasury 4.25% + 135 bp); 0.75% upfront fee; make-whole call

Pricing context

Recent availability-payment P3 private placements rated BBB to BBB+ priced at Treasuries + 120 to 165 bp; projects with full construction risk at the wider end

Sizing

Minimum DSCR 1.30x and average 1.39x in the sponsor base case; loan life coverage ratio 1.42x

Distribution lock-up and default

Distributions to equity blocked below 1.15x historical and projected DSCR; event of default below 1.05x historical DSCR

Reserves

Debt service reserve of 6 months' debt service, funded at close; lifecycle reserve funded per the lifecycle plan; handback reserve from year 27

Security

First-priority lien on all project company assets, accounts and the concession agreement; direct agreements with the State, the design-build contractor and the O&M contractor

Other terms

Cash waterfall: O&M, senior debt service, DSRA, lifecycle reserve, lock-up test, then equity; no additional senior debt except permitted refinancing

Sources and uses ($M, construction period)

Uses: design-build contract (fixed price)

860.0

Uses: owner's and development costs

30.0

Uses: construction contingency

25.0

Uses: interest during construction

85.0

Uses: financing fees

20.0

Uses: debt service reserve funding

30.0

Total uses

1,050.0

Sources: senior debt

780.0

Sources: sponsor equity (paid in pro rata with debt)

150.0

Sources: State milestone payments during construction

120.0

Total sources

1,050.0

Construction security package (design-build contract with the Arcadia–Harlow joint venture)

Contract

Fixed price $860M; date-certain substantial completion 36 months after notice to proceed

Delay liquidated damages

$150,000 per day, capped at 15% of the contract price ($129M)

Letter of credit

10% of the contract price ($86M), from investment-grade banks

Payment and performance bonds

50% of the contract price

Parent guarantees

Joint and several guarantees from both joint-venture parents

Owner contingency

$25M, about 3% of the design-build price

Key exclusions

Unforeseen river-bed geotechnical conditions above a $10M threshold are a shared risk with the State

Payment mechanism and deductions

Availability payment

$88.0M maximum in operating year 1; 60% indexed to inflation, 40% fixed

Unavailability deductions

Per lane-closure hour, weighted by time of day; peak-hour closure of all lanes can remove the full daily payment

Performance deductions

Points for missed maintenance and response standards; deductions capped at 5% of the annual payment before a default warning

Deduction history on comparable State P3s

About 0.5–1.5% of the annual payment in steady state; up to 4% in the first two operating years

Appropriation

Payments subject to annual legislative appropriation; non-appropriation lets the project company terminate with compensation covering senior debt in full

Termination compensation

State default or convenience

Senior debt outstanding plus breakage, and equity at a contractual return

Force majeure

Senior debt outstanding; equity receives its paid-in capital less distributions

Project company default

Adjusted estimated fair value of the contract after rebidding, capped at senior debt outstanding; no floor

Handback

Asset must meet residual-life standards at year 35; handback reserve funded from year 27; the State may withhold payments for shortfalls