Agenda - Council Work Session - 05/28/2013

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Fitch Ratings I Press Release Page 2 of 3 costs (including financing) are estimated at $94.9M, all of which fall in FDOT's adopted five-year (2012-2016) work plan. Most of the FDOT funding will be provided beginning in 2015, requiring $59.1 million in bonds that generate $56 million in proceeds. The bonds will be repaid by future appropriations, beginning in 2015. To accelerate projects, FDOT has allowed contractors to procure their own financing. However, the financial crisis significantly increased the cost of obtaining funding for contractors, slowing down progress. In addition, the gap between project completion and FDOT payment has also increased, making the cost to contractors prohibitive. To help alleviate this issue, FDOT will enter into a DBF agreement with the contractor that commits to a set payment schedule subject to the amount being earned by the contractor and to future appropriation by the Florida Legislature where the project is scheduled in future years. The FMLC has agreed to advance funds to the project via the bond issue through the Funding Agreement with the contractor that pledges the future payments from FDOT in the Design -Build -Finance Agreement. As long as the contractor fulfills its obligations to construct the project pursuant to a fixed price date certain design build contract, then FDOT agrees to pay FDOT Contract Payments pursuant to an agreed upon schedule, subject to appropriation. Bond maturities are structured to match this schedule. The contractor is required to have a surety bond that covers 100% of the project cost plus a cushion for a 25% increase. Pursuant to the contract, the DBF contractor submits monthly draw requests to the Trustee. Upon FDOT acceptance of the work and certification of the earned amount, FDOT will make a Contract Payment pursuant to an agreed upon schedule in the trust indenture and funding agreement. The gap in the schedule will be covered by bond proceeds. The flow of funds requires FDOT Contract Payments to first be used for interest payments and then to fund Contractor draws for work completed. The gap in the schedule, which in this case occurs early on, will be covered by bond proceeds and the capitalized interest account (first seven interest payments). FDOT Contract Payments will commence in 2013, covering interest payments and supplementing bond proceeds for contractor draws. FDOT payments from 2015 onward will be used to retire the bonds. A slow -down in construction progress will slow down FDOT payments while accelerated work will only be approved at a level equal to FDOT's Cash Availability Schedule. Pursuant to sections 4.01 and 5.01 of the indenture, a default by the contractor and surety will result in a tender of the bonds, as will a reduction in the contract price exceeding $250,000 or 15 consecutive or cumulative months of failed FDOT work certifications. A LOC equal to $2.6 million will be provided to cover the use of bond proceeds for issuance costs, administrative expenses, and interest costs during the delay should this situation occur. Bondholders are isolated from contractor risk through several features of the DBF contract, which includes by reference State of Florida DB Specifications and also the DBF RFP issued by FDOT. In particular, the trustee will not disburse funds in the FDOT Contract Payment account or the Bond Proceeds account of the Project Fund without an FDOT engineering certification that the work meets FDOT standards and has been accepted. There is no retainage under this framework as FDOT normally retains funds in the final quarter of payment. However, in the DBF arrangement, project completion will have already occurred well before. In addition, pursuant to the RFP which becomes part of the final DBF contract, FDOT indicates that once an approval has been granted, no offsets can be made against that payment. It can only be applied to the approval of future payments. Thus the Trustee will only disburse funds for approved work and pursuant to the RFP, section 337.145 of the State of Florida Statutes regarding offsetting payments is not applicable. The project is relatively straightforward and consists of connecting US 1 to 1-95 via an extension of SR 9B from US 1 to I- 95. The project also includes adding final interchanges between SR 9B and US 1 that were not part of the Phase I project. The completed project will provide full connectivity to both US 1 and 1-95. Delay risk is likely tied to inclement weather. Infrastructure Development Partners (the DB Contractor) is a JV comprised of Superior Construction Company Southeast, LLC and Signet Enterprises. Superior is a Florida Licensed General Contractor headquartered in Gary, Indiana and specializes in bridges, highways, major earthwork, concrete and asphalt paving. Superior has been doing work in FDOT district 2 for 25 years and has worked on over $400 million in FDOT contracts in the last five years. Signet is a firm with project finance/development expertise Superior Construction currently has a score of 99.1 as assigned by FDOT to reflect past performance on FDOT projects. Ultimately, the bonds are not exposed to completion risk as the combination of bond proceeds, the reserve account, capitalized interest account, pending payments for work accepted by DOT and the LOC should always be sufficient to cover debt service payments or a mandatory tender. For additional information related to the credit quality of the FDOT contract payments, please see Fitch's press release 'Fitch Rates Florida DOT 9B Payment Obligation 'A' dated Aug. 17, 2012 and available at 'www.fitchratings.com'. Contact: Primary Analyst Mike McDermott Managing Director http://www.fitchratings.corn/creditdesk/press_releases/detail.cfm?print=l &pr_id=758276 8/17/2012