Los Angeles International Airport had the private-activity bonds supporting its people mover train downgraded to junk with Fitch Ratings citing continuous and ongoing delays and a strained relationship between the developer and the airport.
The $1.2 billion in PABs issued through the California Municipal Finance Authority for the project were downgraded to BB-plus from BBB-minus by Fitch Ratings on Jan. 19.
The rating agency also has warned the bonds could go lower if airport officials don’t reach an agreement with the development team on the project’s schedule relief and compensation claims within the next few weeks.
Fitch had placed the bonds on
“We did note, if they don’t get schedule relief within a month from the Jan. 19 published date, it could go down further,” said Anubhav Arora, a Fitch director. “But we will have to evaluate if there is further breaching of the longstop date. They are continuing to work on the resolution of claims.”
Although the project is around 96% complete, Fitch said the negative outlook reflects the likelihood that any unresolved construction issues, further deterioration of the relationship between the two parties, or further disputes during the testing and commissioning phase could result in additional material completion risk concerns.
“The track record of delays, drawn out disputes is no longer consistent with an investment-grade rating, and that has driven this downgrade,” Arora said.
The 2.5-mile guided rail system is the centerpiece of LAX’s $5.5 billion Landside Access Modernization Program (LAMP), which will “give guests time-certain access to terminals and provide the long-awaited connection to the regional transportation system,” according to the airport’s website.
While physical construction on the project is nearly complete, the project still needs to undergo a rigorous testing and commissioning process, before it can open for operations, Fitch analysts said.
The project, originally expected to begin operations in June, is now not expected to be completed until April 14, which would delay the opening.
The delay means there is only a 16-day cushion between its current construction timeline and its lender’s April 30 longstop date, which essentially marks the deadline for construction to be completed, said Jeffrey Lack, a Fitch senior director. If that deadline is passed, the bank could hold up release of construction funds, because part of the loan agreement is the lender’s technical advisor report has to certify to the bank or lender the project will be completed by the longstop day, Lack said.
In response to a question about how close the airport is to reaching an agreement with the developers, an LAX spokeswoman said the airport “is in active discussions with the Automated People Mover (APM) contractor to resolve outstanding claims and has no additional information at this time.”
Fitch analysts said they will continue to closely monitor the project’s progress and outcome of any ongoing and potential disputes.