Ferrovial faces rating downgrade on US-460 bonds

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Ferrovial faces rating downgrade on US-460 bonds

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Moody's Investors Service has placed the Baa3 rating on Route 460 Funding Corporation of Virginia's $294 million of senior bonds under review for downgrade.

In January 2013, Ferrovial and American Infrastructure (US 460 Mobility Partners) achieved financial close of the U.S. Route 460 Corridor Improvements Project (DBF). The consortium, which was chosen in October 2013 by Virginia Department of Transportation, also signed the US$1.393 million contract.

The new rating action issued by Moody's primarily reflects the Route 460 Funding Corporation of Virginia's decision to issue a stop work order to US 460 Mobility Partners regarding the construction of the project, pending further environmental review and eventual receipt of an environmental permit, the 404 permit.

Moody's said the stop work order increases the likelihood for a potential delay in project completion and raises the prospects of a price revision. If the 404 permit is not obtained by June 30, 2015, there is a potential for project termination.

Moody's understands that the Virginia Department of Transportation (VDOT) intends to complete the Supplementary Environmental Impact Statement (SEIS) report with the goal of receiving approval from the US Army Corps on the preferred alignment by December 2014. Thereafter, the contractor will seek to obtain the 404 permit approval before June 30, 2015.

Moody's added that even if the SEIS report is completed by December 2014, and a 404 permit approval is subsequently obtained before June 30, 2015, the project may still not be completed by the baseline substantial completion date -- October 2017. If the SEIS report requires a preferred alignment different from the existing alignment, modifications will be needed, which will potentially delay the project, and a contract price increase is also plausible.

Under the Design - Build contract, US 460 Mobility Partners has the right to terminate the contract if the 404 permit is not obtained by June 30, 2015.

Moody's said:

"We understand that the Funding Corporation, the VDOT and the contractor are pursuing negotiations to determine the implications on the project schedule and price but recognize that events remain fluid with little visibility around the expected near-term and intermediate-term outcomes."

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