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Smith's Research & Gradings
Volume: 
XXVIII
Issue: 
17
Author: 
September 28, 2020

Smith's Research & Gradings

Silver Line and Purple Line Problems Underscore Challenges to Economic Development Plans

Silver Line and Purple Line Problems Underscore Challenges to Economic Development Plans

Economic development related to transportation in and around Washington, D.C. underscores the tremendous limitations and challenges facing the area.

The Silver Line is a 23-mile addition to D.C.’s Metro system that will bring riders through Fairfax County and into Loudoun County. The  goal of the project, led by the Metropolitan Washington Airports Authority, has been to connect the regional transit system to Dulles International Airport.

But, the Silver Line will extend past the airport with two additional stops in Loudoun.  The county committed to invest over $270M in building the final portion of the Silver Line to improve transit options and spur commercial development.

However, the penultimate stop on the line, dubbed Loudoun Gateway, is unable to support new housing because of its proximity to the airport. What's more, the nearly two decades of delays in Silver Line construction has effectively bankrupted all of the commercial real estate developers, who had to dump the land, which was then bought up by data center developers. The Ashburn station has several developments planned around it, but only one developer has broken ground.

A mutual agreement is potentially the most pragmatic, but given the inability to find a solution for more than three years, it is hard to predict this outcome with much certainty.

The data centers have allowed the county to achieve enough revenue to pay off the investment, but the type of mixed-use development the county envisioned around the stations has become a pipe dream.  

Purple Line
Last week, Fitch Ratings provided a non-rating commentary that provided insight into the Purple Line light rail public private partnership (P3) project. It continues its tumultuous path forward, according to Fitch Ratings. The agency continues to monitor the potential outcomes and impact on lenders and has identified three possible scenarios with varied impact. The presence of capitalized interest held by the trustee equivalent to 18 months ensures that near-term debt service keeps getting paid while the disputes play out.

There are many permutations of potential scenarios; however, it is Fitch's assessment that a continued, protracted legal battle will not result in an amicable solution that involves Purple Line Transit Partners (PLTP) returning to complete the project. Should the dispute between MDOT and PLTP extend beyond the capitalized interest period, the likelihood of payment default increases for the bondholders.

The scenarios Fitch envisions are:
PLTP terminates the project based on 365-days of critical path delay, MDOT challenges the basis in court, PLTP is successful; the debt is paid off in full:
A judge ultimately rules that 365 days of critical path delay due to relief events have occurred. PLTP's termination is deemed valid and a termination for extended delay is the determination of the court. A termination payment would then be due from MDOT to cover a full payment of outstanding debt along with payment of equity invested.

PLTP terminates the project based on 365-days of critical path delay, MDOT challenges the basis in court, MDOT is successful; the debt likely defaults:
A judge ultimately rules that 365 days of critical path delay due to relief events have not occurred. PLTP's termination is deemed abandonment of the project and there is a termination for concessionaire default. PLTP files claim against PLTC for abandonment of the project under the design build contract. The termination payment due lenders from MDOT would likely be no greater than 80% of senior debt, causing a payment default on senior debt. A payment to bondholders above and beyond MDOT's contractual obligation is possible if it perceives that to be in the state's interest, but that would be entirely at MDOT's discretion.

PLTP and MDOT come to a mutual agreement:
To renegotiate the concession; the debt is restructured; the transaction stabilizes; the line is built and operational; the debt is serviced in full and on time (assuming no material operational issues) and repaid over time;
To terminate the concession; the debt is paid off in full.

Fitch noted here is a significant cost associated with a termination for convenience, extended delay or cause with the former two being more expensive. Retendering the concession will also likely involve a significant premium. A mutual agreement is potentially the most pragmatic, but given the inability to find a solution for more than three years, it is hard to predict this outcome with much certainty.

Fitch rates MDOT's PPP grantor payment obligation rating 'AA-'/Outlook Stable. Structural provisions of the PPP agreement are sound with the commitment of the grantors, MDOT and MTA (a subsidiary agency of MDOT), structured to resemble the state's existing transportation certificates of participation (COPs, rated AA+/Stable). All MDOT and MTA obligations under the PPP agreement benefit from MDOT's contractual commitment to seek annual legislative appropriations for all scheduled payments.

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