I-69 construction suffers delays and pay issues, leading to bond downgrade

Citing construction delays and slow payments to subcontractors, Fitch Ratings has downgraded the bonds issued to finance the construction of Interstate 69 between Bloomington and Martinsville.

An Aug. 5 report from the bond ratings service expresses doubt that the section of I-69 will be complete by its deadline in June 2017.

Fitch lowered its rating from a BBB- to a BB. According to Fitch’s rating scale, the move drops the bonds into the “speculative” category, with “an elevated vulnerability to default risk” for investors who hold those bonds.

This marks the second time Fitch has downgraded the bonds. In April, the ratings agency dropped the bonds from a BBB rating to a BBB-.

The Indiana Finance Authority issued the bonds in 2014 in the amount of $243.8 million. Proceeds from the sale of those bonds are helping finance the construction of Section 5 of I-69, which involves upgrading 21 miles of State Road 37 to interstate standards.

The Indiana Finance Authority selected I-69 Development Partners LLC as the developer of Section 5, and the company in turn hired Isolux Corsan as the construction contractor.

Work on that section began in 2014. Initially, planners said Section 5 would be finished by the end of 2016. But this spring, planners pushed that date back to June 28, 2017.

In its Aug. 5 statement, Fitch cited two reasons for the pushback: delays in securing necessary permits, and “non-payment from the contractor that led to some subcontractors demobilizing from the site.”

Payment issues still had not been resolved with all subcontractors, which was causing continued delays, Fitch said in its Aug. 5 report

I-69 Development Partners has issued two notices of default to Isolux because of the delays, Fitch said. Isolux would have 20 days from Aug. 4 to pay its subcontractors and 60 days to address the construction delays.

In its statement, Fitch also noted that Isolux’s parent company, Spain-based Isolux Corsan SA, has had its own problems with deteriorating credit quality. Isolux Corsan SA is in the midst of a financial restructuring plan.

Fitch said it believes the June 2017 completion date “will be challenging to meet” because Isolux is “substantially behind the anticipated expenditure curve” for the project.

“In total, the project is behind the anticipated cumulative drawdown by over $38 million, which is over 10 percent of the entire contract value,” Fitch wrote.

“Unless significant construction progress occurs over the next several months and the default issues are adequately addressed, further negative rating action is likely,” Fitch wrote.

IBJ was unable to reach an Isolux Corsan representative Friday morning.

But the Indiana Finance Authority’s Director of Public-Private Partnerships, Jim Stark, expressed optimism that Section 5 would be completed on schedule.

"The developer’s target completion date is June 2017. I-69 Development Partners indicates that the capabilities are there to make it happen, and we support the developer in holding their contractor accountable to ensure those capabilities are fully realized to meet the scheduled date,” Stark said through a spokesperson.

“In addition, the State of Indiana will continue to exercise its rights contractually to ensure the road is completed to quality on schedule,” Stark said.