Outlook for LAWA's people mover PABs revised to positive by Fitch

Fitch Ratings revised the outlook to positive from negative on $1.2 billion in private-activity bonds issued to pay for Los Angeles World Airport's people mover project.

Fitch also affirmed the BB-plus rating on the two series of senior lien revenue bonds issued through the California Municipal Finance Authority for LINXS, the consortium of private companies developing the project.

The 2.5-mile guided rail system is the centerpiece of LAWA's $5.5 billion Landside Access Modernization Program, which will provide a long-awaited connection to the regional transit rail system.

The rating agency had warned in January the bonds' rating could drop lower if airport officials did not reach an agreement with the development team on the project's schedule relief and compensation.

Fitch had downgraded the LINXS bonds to its current junk rating status in January ? from the BBB-minus assigned when the debt was sold ? after conflicts between LAX and LINXS called the viability of the project into question. The upshot was the project was substantially complete, but likely to open much later than originally anticipated. Conflicts between the airport and developers over delays ? and who should cover the resulting cost increases ? resulted in Fitch placing the bonds on negative outlook in October 2023.

The outlook revision reflects an agreement between the developers and the airport to extend the official opening date of the project to December 2025, Fitch said. The rating agency also said the design-build contractor members "are experienced with a long history of successfully working together."

The contractor-liquidated damages "are adequate to cover unavoidable costs if there are future extended delays, and the liquid security provided by the DB contractor after the recent step-up covers 365 days of delay liquidated damages," Fitch said.

The extension alleviated prior concerns about breaching the lenders' long stop date, according to Fitch's Aug. 29 report.

Fitch analysts said they will continue to monitor the execution of the global settlement terms and overall completion progress.

The BB-plus rating "reflects a history of longstanding completion delays and protracted negotiations between the project and its concession grantor, LAWA. Although LINXS and LAWA have demonstrated the ability to successfully negotiate time extension and cost relief claims, the project has repeatedly faced significant uncertainty," according to Fitch.

Once the line is operational, the "project's credit profile will be reflective of a strong revenue-paying grantor and well-defined operating standards," Fitch analysts wrote.

Although the Fitch rating average debt service coverage ratio (DSCR) of 1.15 times and realistic outside cost to breakeven multiple of 7.8 times are consistent with an investment grade rating, the rating is currently constrained by the project's completion risk profile, analysts wrote.