Los Angeles airport PAB outlook now negative, Fitch says

The $1.2 billion in private-activity bonds supporting Los Angeles International Airport’s people mover train have been removed from negative watch by Fitch Ratings and placed on negative outlook.

The ratings on the bonds issued through the California Municipal Finance Authority were affirmed at BBB-minus.

The people mover 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.

The 30-year, $4.9 billion contract was the largest ever awarded in the city of Los Angeles’ history and was the first public-private contract at LAX. LAX Integrated Express Solutions (LINXS) was the joint venture selected to design, build, finance, operate and maintain the project.

LAX broke ground on the LAMP project in March 2019 and the system was slated to open in 2024, but delays have pushed the deadline.

The removal of negative watch “reflects the recent cure of the developer default notice issued by Los Angeles World Airports (LAWA) — rated AA/AA-minus — to LINXS earlier in July 2023, thereby eliminating uncertainty around concession termination,” Fitch analysts wrote in a report published Friday.

The project’s bonds were given a negative rating outlook reflecting “extended completion delays on the project and strained relationship between the project and its concession grantor, notwithstanding the cure of developer default notice by LINXS.”

In the absence of any approved compensation from LAWA, Fitch said it, “expects the project to have sufficient funds to cover additional unavoidable costs — either from liquidated damages payable by the design-build contractor or from compensation by LAWA if the relief event claim is supported with a settlement.”

The upfront liquid security provided by the design-build contractor only covers up to 257 days of damages and would become insufficient if project delays push the completion date beyond this period, Fitch wrote. Analysts said they will continue to monitor the step-up liquid security by the contractor in case the delays to the professional services agreement date exceed 180 days.

Airport officials could not be reached for comment on what kind of compromise had been reached.

Fitch placed the bonds on negative watch — a lighter version of assigning a negative outlook — in early August amid a dispute between airport officials over project delays and cost overruns.

In a disclosure notice in early August, the developers wrote: “LINXS wishes to reassure you that LINXS has not — and does not intend to — abandon any part of the project.”

Fitch analysts said in the August report they believe the notice is “reflective of a strained relationship between the parties, and also introduces uncertainty over project completion as concession termination is one of the remedies available to LAWA if the developer default is not cured within 30 days.”

Completion was expected in June 2024, but the contractors asked to extend the deadline. The project is 93.9% complete, Fitch wrote.

Fitch added in affirming the investment grade rating, it “expects the project to have sufficient funds to cover additional unavoidable costs — either from liquidated damages payable by the design-build contractor or from compensation by LAWA if the relief event claim is supported with a settlement.”

Delays were caused by underground utility conflicts, complex interfaces with numerous stakeholders as well as the necessity for design and permit approvals from several different companies, Fitch analysts wrote.