Fargo-Moorhead project borrower confident about bondholder consent

The Fargo-Moorhead Metropolitan Area Flood Risk Management Project faced a deadline Friday to secure bondholder consent for settlement agreements that would resolve construction disputes and restore the project’s original timeline and the borrower was confident they would meet the required approval rate. 

The North Dakota public-private partnership’s green private-activity bonds carry a Baa3 rating and stable outlook from Moody’s Ratings. When the project priced its first bond issue in 2021, it represented the first use of a P3 model involving the Army Corps of Engineers.

In 2022, Fargo-Moorhead won The Bond Buyer’s Deal of the Year award in the P3 category for an issuance that was part of a three-part debt financing package for the $2.75 billion project.

Under a master consent form dated Oct. 17, the borrower, Red River Valley Alliance, requested that senior creditors consent to an amended project agreement and amended design and construction contract by end of business day on Friday.

The senior noteholders, the bondholders and the senior lenders were entitled to cast votes, according to the consent form.

“We have the consent of several very senior creditors,” Red River Valley Alliance CEO Luke Chenery said in a Thursday interview. “We think we’re going to get a lot more over the next 24 hours. We only need two-thirds of the lenders to consent. We feel confident we’ll get there.”

Chenery said Red River Valley has been answering questions from creditors along the way and “if lenders needed more time, that’s easy for us,” since the deadline “was fairly arbitrary, but we wanted to have it not drag on too long. We could extend it.”

The settlement agreements are limited to construction disputes and will keep the project on its original trajectory to finish on time, he noted.

The settlement “actually improved the timeline,” he said, adding it moved the project back to its initial completion target date of 2028, with the first flood protection provided in 2027.

“From a creditor’s perspective, it’s really good,” he said. “It resolves any risks related to late delivery of the project. This is fairly straightforward, it’s in the best interests of everyone.”

The project recently landed in Municipal Market Analytics’ impairment database because of the event notice posted on the Municipal Securities Rulemaking Board’s EMMA website last month. 

If the project receives the consent of the required two-thirds of bondholders, it will be removed from the database, said MMA Managing Director Lisa Washburn. She pointed to the Los Angeles International Airport people mover train project, which landed on MMA’s database amid ongoing project delays but disputes between the developer and the airport eventually were resolved.

“There’s no formal impairment,” she said of Fargo-Moorhead. “If the bondholders approve (the settlement), then things will be fine. But if they don’t approve it, there could be an issue with stabilizing the project. It increases long-term risk. These P3 transactions can have these disputes. … If there’s some difficulty getting the settlement approved, it could suggest long-term issues.”

The allocation of risks in a P3 are a bit more complicated, Washburn said, and the mechanisms to get relief in those transactions can be a source of pressure, sometimes triggering rating changes, for example.

“Costs could increase, the timeframe could increase and all of those are potential issues that could affect credit quality,” Washburn said.

Design and construction contractor ASN Constructors did not respond to a request for comment. 

The Metro Flood Diversion Authority — which according to its website is responsible for ensuring the safe and timely construction of the project and which entered into the settlement agreement with Red River Valley and ASN Constructors — also did not respond to a request for comment by press time.