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Global Infrastructure & Project Finance

www.fitchratings.com September 29, 2015

Toll Roads / Global

Rating Criteria for Toll Roads, Bridges and TunnelsSector-Specific Criteria

Scope of Report and Criteria

Extent of Report: This criteria is used for rating debt instruments where repayment is

dependent on cash flows from tolled roads, bridges and tunnels (together, toll roads), including

both assets with an operating history and greenfield assets currently under construction.

Evaluation and Attributes: Among assets rated by Fitch Ratings under these criteria are

those owned and operated by directly by public authorities or in separate enterprise funds, and

those operated privately under long-term concession agreements. The criteria also apply to

shadow toll roads. Finally, it partly applies to availability-based road projects in the assessment

of risk factors such as operations, infrastructure renewal and, to some degree, traffic growth.

However, these projects are primarily rated under Rating Criteria for Availability-Based Projects,

an exposure draft for which was published June 17, 2015. Managed-lane projects feature

unique risk profiles — a detailed explanation of how Fitch applies the criteria for these projects

is provided in Appendix B.

Indicative Rating Ranges: Mature large networks may achieve ratings in the ‘AA’ and ‘A’

categories. Small networks and stand-alone facilities are unlikely to achieve ratings above the

‘A’ category, and are more likely to be rating in the ‘BBB’ category or below, based on a more

limited geographical footprint, narrower customer base and other facility-specific factors.

Criteria Application: Risks and limitations of methodology common to all infrastructure and

project finance debt not discussed here are covered in Rating Criteria for Infrastructure and

Project Finance (master criteria), published Sept. 28, 2015. Attribute tables are not prescriptive,

but provide qualitative guidance in assessing project risks, and only address part of the rating

process. Rating action commentaries on specific rating actions taken will discuss those factors

most relevant to them. The relative influence of qualitative and quantitative factors varies

between entities and over time. As a general guideline, where one factor is significantly weaker

than others, this weakest element may attract greater analytical weighting.

Key Rating DriversSix Rating Factors: Fitch has identified six key rating factors, each of which plays a significant

role in determining the rating outcome for toll roads. These are discussed at various points in

the criteria report with attribute tables. The primary key rating factors for toll roads include:

• Completion Risk: Complexity and time scale of the construction phase; contractor expertiseand implementation plan; availability of replacement contractors; terms of the construction

contracts; contractor credit quality and credit enhancement available.

• Revenue Risk — Volume: Nature of the transportation link provided, traffic composition,the economic and demographic fundamentals of the service area. The exposure, if any, to

competing alternatives, and the road or network’s historical and projected traffic profile.

The level of elasticity demonstrated in the road’s traffic response to toll rate increases.

• Revenue Risk — Price: Legal and political toll rate-raising ability.• Infrastructure Development/Renewal: Approach taken to capital investment and

maintenance including planning, funding and management.

• Debt Structure: Composition of payment terms. Strength of covenants to support debtpayment, maintain adequate liquidity and limit leverage.

• Debt Service: Cash flow resilience to support timely debt payment under base case, stresscase and break-even financial scenarios.

This report replaces the existing criteriareport published Aug. 20, 2014.

Related Criteria

Rating Criteria for Infrastructure andProject Finance (September 2015)

Analys tsSaavan Gatfield+1 212 908-0542

[email protected] Quattromani+39 02 879087 [email protected]

Astra Castillo+52 55 5955 [email protected]

David Cook+61 2 8256 [email protected]

https://www.fitchratings.com/creditdesk/reports/report_frame_render.cfm?rpt_id=870967https://www.fitchratings.com/creditdesk/reports/report_frame_render.cfm?rpt_id=870967mailto:[email protected]:[email protected]://www.fitchratings.com/creditdesk/reports/report_frame_render.cfm?rpt_id=870967https://www.fitchratings.com/creditdesk/reports/report_frame_render.cfm?rpt_id=870967

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Rating Criteria for Toll Roads, Bridges and Tunnels 2

September 29, 2015

Key Rating Driver Assessments for Toll Roads, Bridges and Tunnels

Revenue Risk: Volume Revenue Risk: PriceInfrastructureDevelopment/Renewal Debt Struc ture

Description • Resilience of traffic volumes tomacroeconomic stress,competition, and other eventrisks.

• Current toll rates relative to peers

and distance to perceivedrevenue maximization point.

• Demonstrated willingness andability to increase tolls.

• Nature of any caps (statutory,contractual or political).

• Approach to the ongoing capitalprogram and maintenance,including planning, funding,management.

• Adequacy and appropriateness of

investment scope.

• Fixed-/variable-rate debt maturityprofile.

• Amortization profile, refinancerisk.

• Flow of funds, distribution test

and reserves.

Stronger • Proven resilient traffic base withrelatively low volatility.

• Typically includes facilities withnear monopolistic characteristics(i.e. an essential road with a largecommuter base, limitedcompeting roads, or other modesof transportation).

• Low elasticity.• Low toll rates.

• Legal or contractual flexibility toincrease rates in excess ofinflation, with minimal legislativeor political interference. Inpractice, rates can be, andhistorically have been, increasedwith material flexibility.

• Highly developed and detailedcapital and maintenance plan withstrong contract terms and projectdevelopers.

• Annual inspections with objectiveand quantitative measures.

• Plan largely funded from projectcash flows.

• Concession framework providesfor full recovery of expenditure viaadjustment in toll rates.

• Road capacity well abovemedium-term traffic forecasts.

• Senior debt.• High percentage of fixed-rate

debt.• Limited refinance risk or fully

amortizing debt.• Strong covenant package and

reserves.• Sweep of significant portion of

excess cash flow to repay debt.

Midrange • Proven traffic base with relatively

moderate volatility.• Typically includes facilities with a

larger percentage of commercialor discretionary traffic; anessential road facing somedegree of competition fromcompeting roads or other modesof transportation.

• Price elasticity of demand to tollincreases is low to moderate.

• Moderate toll rates.

• Legislative approval with

demonstrated history of toll rateincreases.• Concession framework allows

periodic rate increases that trackinflation.

• Moderately developed capital and

maintenance plan with adequatecontract terms and projectdevelopers.

• Concession framework providesfor adequate recovery ofexpenditure via adjustment in tollrates.

• Road needs some expansion orrehabilitation to accommodatemedium-term traffic forecasts.

• Some variable-rate risk present.•

Moderate use of bullet maturitiesor some back-loading of debt.• Some imbalance from swaps/

derivatives.• Adequate covenant package and

reserves.

Weaker • Traffic with limited or no history;relatively high volatility.

• Typically includes facilities with alarger percentage of leisure orsingle purpose traffic; meaningfulcompetition; or greenfieldprojects.

• Untested or high price elasticity of

demand.• High toll rates.

• Legislative approval with limitedhistory of toll rate increases.

• Concession framework limitsperiodic rate increases to lessthan inflation.

• Weak planning mechanisms,history of deferred maintenanceand weak contract terms anddevelopers.

• Concession framework doesn’tprovide for a significant recoveryof expenditure via adjustment intoll rates.

• Road capacity significantly belowmedium-term traffic forecasts.

• High percentage of variable-ratedebt.

• Significant use of bullet or backloaded maturity structure.

• Use of derivatives resulting inimbalanced exposure.

• Loose covenant package andreserves.

• Deeply subordinated debtexposed to protective features ofthe senior debt particularlypunitive to it.

Relevant Metrics • Local and regional economicdata.

• Type of corridor.• Traffic volume volatility over time.• Traffic composition.• Competing roads/alternative

transportation modes.• Elasticity.

• Toll rate per kilometer/mile.• Value of time.• Toll rate relative to any cap.

• Asset quality.• CIP program specifics.

• Percentage of fixed-/ variable-ratedebt.

• Percentage subject to refinancerisk.

• Rate covenant.• Level of reserves.• Distribution test.• Amortizing debt or bullets.

Debt Service This key rating driver considers metrics for liquidity, debt service coverage and leverage in the context of the overall risk profile determined by reviewof the other key rating drivers. For example, a large, mature, toll road network with predominantly midrange and stronger characteristics could berated in the ‘A’ category with debt service coverage ratios of between 1.40x−1.50x in the rating case. Moreover, a project's rating may beconstrained by a "weaker" assessment on a key rating driver notwithstanding coverage ratios that may otherwise suggest a higher rating. This isdiscussed more fully under the Debt Service section below.

Completion Risk

When present, this key risk factor is assessed using the analytical framework described generally in this report and in more detail in the Appendix ofthe Master Criteria report, Rating Criteria for infrastructure and Project Finance, dated Sept. 28, 2015. The framework is used to derive the maximumpossible rating during completion phase, based on complexity and scale, contractors and implementation plan, ability to replace contractor, and corecontractual terms, as well as liquidity available to support a project in case of contractor default.

CIP – Capital improvement program.Source: Fitch.

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Structure and Information

Ownership and Sponsors

Toll roads are operated under a wide range of ownership and sponsorship structures that vary

by country, including publicly owned and operated enterprises; publicly owned assets operated

privately under long-term concession agreements; and, in very rare cases, outright private

ownership.

Privately operated toll road concessions typically employ a design, build, finance, operate and

maintenance (DBFOM) arrangement, under which concessionaire revenue is derived from tolls

charged directly to users or shadow tolls paid by the concession grantor. Relevant rating

considerations relating to the concessionaire ownership structure include sponsors’ experience

in developing and managing similar projects and the level of equity invested in the project.

The demand for equity returns makes it unlikely that a privately operated concession will be

rated in the ‘AA’ category, as an optimal gearing will result in a higher level of debt. Likewise,

public sector ownership does not preclude ratings in the ‘BBB’ or non-investment-grade

categories.

Legal and Regulatory

For privately managed projects, key documentation includes the concession agreement under

which construction and maintenance obligations and tolling rights are granted, along with the

statutes that allow the public sector concession granting authority (grantor), such as a ministry

of transport, to enter into such an arrangement. For publicly managed projects, key

documentation includes the statute that creates the public sponsor, establishes its

organizational framework, its scope and the power to charge tolls for services provided. The

authority’s ability to build, operate and toll will be considered a credit positive if it is granted at

the highest sovereign level possible, such as the central government in the case of a national

roadway or the provincial/state government in the case of a local or regional toll facility.

It may be difficult for governments to anticipate future public policy objectives or network

capacity needs when entering into concession agreements with a private operator. In Fitch’s

view, expansion of facilities to maintain satisfactory levels of service, or the eventual

construction of competing facilities, road or transit, are events likely to occur during the course

of long-term concession or ownership agreements. Economic rebalancing mechanisms that

protect lenders, such as compensation payments, easing of concession requirements, or

extensions of term, can provide such flexibility, and would be considered by Fitch stronger

attributes. The presence or absence of these provisions is considered in the rating process.

While such provisions promote long-term financial stability, their absence increases the risk that

disputes may result between grantor and concessionaire, leading to actions that undermine

investor security. Fitch will take comfort from an established legal framework, such as concession

law, which has demonstrated its ability to protect both the concessionaire and lender’s interests,

notably with respect to project terminations. Project documents will set out the process through

which disputes are to be managed. Where the grantor has the right to terminate at will, or in the

case of termination following an uninsurable force majeure event, Fitch will evaluate whether the

contract provides sufficient compensation to hold lenders harmless.

Beyond these documents, Fitch also considers the relevant political and legal jurisdiction for the

project. Lack of court action precedents that indicate efficient resolution of contractual obligations

can limit the value of a long-term concession, as can a history of political disregard of contractual

Glossary• ABT: Additional bonds test.

• CFADS: Cash flow available for debtservice.

• CIP: Capital improvement plan.

• DSCR: Debt service coverage ratio.

• EBITDA: Earnings before interest,taxes, depreciation, and amortization.

• LLCR: Loan life coverage ratio.

• MADS: Maximum annual debtservice.

• Opex: Operating expenditure

• Capex: Capital expenditure

See also ratio definitions on page 16.

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obligations. In addition, a political environment where significant policy changes occur with

changes in administration can also limit the value of contracts and statutes. Where these

circumstances exist, credit ratings will likely be limited as a result. Fitch will rely on legal opinions,

issued by local, reputable, expert legal counsel, that address the enforceability of bondholder

remedies and structural credit protections.

Use of Expert Reports

There are two primary consultant reports that Fitch evaluates as part of its credit process: the

technical advisor’s (TA) report that addresses construction/completion as well as maintenance

and life cycle, and the traffic and revenue (T&R) consultant’s report that analyzes current and

historical traffic movements and toll rates and provides future T&R projections. The

dependence on these two reports will vary based on the nature of the project and the quality of

the reports.

The lack of a T&R report and/or a TA report for an operating asset will generally be viewed as

a weaker attribute. However, this may be partially mitigated to the extent that management has

developed its own internal projections through the use of qualified staff and past projections

have proven to be both reliable and objective. By definition, greenfield projects involveconstruction and have no operational history, so there is a greater need for both an in-depth

study of completion risk by the TA and for the T&R study to provide analysis of the traffic

patterns in the region, including competing facilities and how they are expected to change once

the new asset is brought online.

In terms of the TA report, Fitch will review the TA’s assessment of the contractor’s ability to

construct the proposed works by the scheduled completion date for the cost specified in the

contract. Fitch’s approach in assessing completion risk is listed in more detail in the master

criteria.With respect to the T&R report, Fitch will first look at the quality of the data set used as the basis

for the projections formed. Robust applicable data is essential to ensure reliability of inputs, as

small variations in data can lead to large differences in forecast outputs.

In addition, Fitch will evaluate the traffic consultant’s assessment of the economic,

demographic, and land use profile of the toll facility’s service area, existing traffic conditions

and screen line counts, planned transportation improvements, and motorists’ perception of the

asset’s utility. This analysis provides an indication of how economic, demographic and corridor

Use of Expert ReportsStronger Attributes Report elucidates areas of and exposure to key risks (adequacy of budget, schedule, traffic, toll rates,

and revenue growth) and provides a view of the ability to manage them; robust availability/reliability ofhistorical data and sample size; data collected by a central governmental entity and subject toaudit/verification; demonstrated ability to provide reliable and objective traffic and revenue forecasts;and provides a strong and robust analysis of construction risk as well as a reliable assessment offuture project lifecycle costs.

Midrange Attributes Report provides some indication of and exposure to key risks (adequacy of budget, schedule, traffic,toll rates, and revenue growth); adequate availability/reliability of historical data/solid sample size;data collected by a central governmental entity and subject to audit/verification; solid experiencedeveloping reliable and objective traffic and revenue forecasts; and provides a strong and robustanalysis of construction risk and an adequate assessment of future project lifecycle costs.

Weaker Attributes Report provides limited assessment of and exposure to key risks (adequacy of budget, schedule,traffic, toll rates, or revenue growth); limited to no availability of historical data/small sample; data notsubject to audit and/or not collected by a central governmental entity; limited demonstratedexperience developing reliable and objective traffic and revenue forecasts; and provides aninadequate analysis of construction risk and future lifecycle costs.

Source: Fitch.

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traffic and transportation network conditions contribute to a toll facility’s T&R profile, and Fitch

will focus on understanding how variations in these inputs affect projected opening year traffic.

Many greenfield projects across the world have experienced actual traffic significantly below

original estimates once operational. In most cases these discrepancies are explained by

delayed or different patterns of land development, or assumptions about human behavior

without any locally obtained observations. Fitch will thoroughly review forecasts to fully

understand the dependence of projected revenue on future land development and other

behavioral factors. Projects dependent solely on land development will be viewed as having

weaker attributes for volume risk. Projects that create a tolled alternative to an existing free-to-

use road or that enhance tolled capacity, and can therefore be considered more of a

congestion reliever than a pure greenfield project, have more predictability and may be viewed

as having midrange risk.

The decision to drive on a toll road is just that a decision made by an individual based on a

number of factors including cost and time savings. As such, Fitch recognizes the limitations of

the long-range planning models used to forecast annual T&R and views these projections as a

starting point in analyzing the relative magnitude of a toll facility’s expected demand profile.

The T&R report and forecasts are useful tools and provide important information that mayguide Fitch’s analysis, but it should be noted that Fitch may draw on other resources for

information, data or forecasts to help if form its own T&R assumptions to be used in its analysis.

Completion Risk

For toll roads under construction, Fitch regards a comprehensive engineering, procurement

and construction (EPC) contract as a reasonable way of mitigating delay, plant performance

and cost overrun risks. Completion risk could also be mitigated where an owner/constructor

model is employed through an appropriately sized budget, contingency and an adequate owner

with relevant experience or completion guarantee from a credit-worthy sponsor. Fitch’s

approach to completion risk is explained in the master criteria, some relevant aspects of which

are detailed below.

Project Complexity and Scale

Project complexity and scale vary significantly and provide the context for which the

contractor’s implementation plan and contractual arrangements will be assessed. Toll road

projects are usually relatively straightforward, although some complexity may be present when

projects involve large civil structures such as bridges or tunnels and, in some cases,

construction may take place on challenging terrain. Any technical complexity may contribute to

completion delays, capital cost increases, or result in reduced performance leading to lower

operational cash flows. Fitch will assess the extent to which the inclusion of complex structures

may increase completion risk by assessing float in the schedule to complete such works,

contingency in the budget to cover unforeseen costs and the expertise of the contractor with

respect to such structures.

Contractor Expertise and Implementation Plan

The use of contractors and subcontractors with suitable experience and capacity is a key

element of completion risk, particularly for larger, longer projects or projects that involve some

level of complexity. Demonstrated experience should include similarly sized projects featuring

similar structures or works on similar terrain, preferably in the same geographical area.

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As part of its analysis, Fitch looks to the opinions of TAs with respect to contractor suitability.

The TA’s opinion should address the construction contractor’s experience, suitability of project

design, achievability of schedule, sufficiency of cost budget and contingency, along with

various delay, replacement and downside scenarios. Fitch also reviews the analysis and

conclusions of TAs and considers their opinions regarding construction schedule attainability

when assessing delay risk. Fitch also reviews construction monitoring reports by the TAthrough completion of a project and the rating may be negatively pressured if construction

issues suggest substantial completion delays, cost overruns, or performance shortfalls.

Availabili ty of Replacement Contractors

The risks of construction cost, delay and asset performance are typically passed on to the

contractor in project financing. A key part of Fitch’s analysis relates to how easy it would be to

replace the contractor if they do not perform adequately or become insolvent. Since toll roads

projects are generally relatively straightforward, there is often a reasonable level of competition

among numerous qualified EPC firms, improving the ability to replace contractors in the event

of underperformance, extended completion delays or bankruptcy. This analysis is critical when

project may be rated higher than contractor.

Contract Terms

Experienced EPC contractors with high credit quality that have demonstrated a history of timely

project completion provide a stronger risk mitigant, particularly when committing to extensive

completion and performance guarantees with LD provisions to incentivize timely completion.

Fitch will examine the strength of risk allocation specified in the construction contracts to

address design, scope of work, pricing structure and schedule milestones. Location can

increase delay risk when projects are located in remote areas with difficult terrain and climate,

or less-developed countries where supporting infrastructure may hinder the movement of

supplies and workforce. EPC contractors are responsible for staffing project construction

programs with appropriately skilled local and/or foreign labor as required to meet completiondeadlines.

Indicative Midrange Assessments for Key Completion RiskFactorsProject Complexity and Scale Predominantly straightforward road construction with some exposure to more complex

civil structures. Medium project scale (USD250 million–USD750 million) andconstruction duration is two to four years.

Contractor Expertise andImplementation Plan

EPC contractor with extensive experience of similar project types in similar terrain andweather conditions. Cost and time budget with standard contingency and ability towithstand downside scenarios as opined upon by TA. Limited project exposure to rightof way acquisition or utility/railroad risks.

Availability ofReplacement Contractors

Some replacement contractors available with some volatility in availability of local labor.Termination date in concession agreement provides adequate time to replacecontractor.

Contract Terms Fixed price and date certain contract with clear design and work scope matchingconcession requirements. Detailed milestones with performance thresholds, completiontests, and LDs to keep the project whole. Clear risk allocation and dispute resolutionterms. Completion guarantees on debt from a ‘BBB’ category sponsor or other party.

Contractor Rating andCredit Enhancement

Adequate contractor credit quality or sufficient funded contingency, payment retention,and letters of credit and surety bonds to cover replacement cost in the case ofcontractor default.

TA – Technical advisor. LD − Liquidated damages. EPC − Engineering, procurement and construction.Source: Fitch.

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Contractor Rating and Credit Enhancement

Fitch assesses the contractor’s rating and whether the project company has sufficient credit

enhancement to meet the potential cost of contractor replacement. Typically, a large single

EPC contractor with sole responsibility for project completion is favorable compared with

multiple smaller contractors and subcontractors. The risk of using multiple smaller

subcontractors can be mitigated with a general contracting firm with sole completion

responsibility and liability for payment of potential performance or delay damages.

Construction contractors with stronger credit quality help mitigate completion risk. Financially

stronger contractors can be relied on to honor their warranties or pay liquidated damages (LDs)

when needed.

A contractor’s rating can constrain the rating of the debt during the completion phase absent

structural and financial enhancements that provide uplift to the rating. Such enhancements

include funded contingency, retainage, letters of credit and performance bonds. The amount of

uplift from partial enhancements is limited to two rating categories. The amount of

enhancement is a function of the rating of the contractor and the TA’s assessment of costs

incurred on a default. The table on page 6, Indicative Midrange Assessments for Key

Completion Risk Factors, summarizes typical contract terms for a midrange assessment on a

toll road project. A more detailed breakdown can be found in the master criteria.

Operation Risk

Toll road projects tend to face a lower level of operational risk than other project types in the

project finance universe, given that operations are primarily limited to collecting tolls,

maintaining toll collection and violation enforcement hardware/software, basic maintenance of

roadway infrastructure and responsive repair works.

Operator

Privately run toll facility concession, lease, or license agreements typically allow the grantor toterminate if certain standards are not met. Fitch will focus on the operator’s experience in the

context of the standards that must be met for road condition, safety, level of service, and future

expansion requirements. Fitch may view operational risk as being elevated if the concession

has operating standards that are more rigorous than commonly accepted or if the operator has

limited experience.

For publicly run assets, this termination risk does not exist and, as such, operator risk is

significantly reduced. In most cases there are certain basic standards, but importantly the asset

cannot change ownership if these requirements are not achieved. In these cases, lenders are

only exposed to risks related to uncontrolled operating expenses and very poor asset

maintenance. Fitch will evaluate the experience of the management team, its record of cost

management and facility maintenance relative to peers.

Costs

Certain components of operating cost, such as labor or raw material commodity inputs, may be

exposed to above-inflationary increases over time. This can negatively affect CFADS if toll

revenue tracks inflation. This risk is mitigated on assets that have the legal ability to raise toll

rates in line or above inflation. However, assets that have rate-setting authority limited by a

formula must be more vigilant in managing cost growth over time without impacting financial

flexibility. Private road operators will likely be incentivized by possible profit to contain costs;

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public operators do not have this incentive to manage costs, and so cost risk may be more

elevated.

Should the public sector enterprise or private project concessionaire outsource operations

under a long-term operating contract, it may benefit from increased cost certainty but would

lose the opportunity to take advantage of market efficiencies that may develop over time.

Shorter operating contracts of five to seven years provide the project company/owner with the

opportunity to renegotiate for potentially lower costs, but this approach does not protect the

project against longer term rapid cost escalation. In cases featuring a long-term, fixed-price

operating contract with a highly experienced and creditworthy counterparty, Fitch may

determine that small or no adjustments to the cost profile may be warranted. That said, such an

approach would increase counterparty exposure.

Costs per kilometer or mile will vary based on the age and type of asset, geographic location

and typical weather conditions, terrain (tunnels and bridges have more specialized needs), toll

collection approach, prevailing wage levels and the level of regulation. In its analysis, Fitch will

assess costs per kilometer/mile and operating margin and compare with peer projects.

Unrealistic projections for operating and maintenance and rehabilitation may increase risk,

since deferral of maintenance may shorten asset life and result in higher leverage over time orconcession termination. Fitch may view cost risk as elevated if the asset has a history of

deferring maintenance or underfunding system preservation.

Revenue Risk

Other than completion risk for greenfield projects, revenue risk is usually considered the most

significant rating factor for toll roads. Gross revenue is determined by volume and price, and

risk is driven by the level of uncertainty around traffic levels and the ability to raise toll rates as

necessary over time.

Uncertainty surrounding revenue projections is particularly high for greenfield projects given

forecasting risk for roads with no traffic history. In analyzing such projects, Fitch will carefully

review the underlying assumptions and methodology of the T&R consultant, compare

performance history of similar greenfield projects and historical information on traffic

movements, congestion, the local economy and demographic trends in the relevant service

region to understand the level of capture and growth necessary to support debt repayment.

Projections may be significantly discounted if forecast results are dependent on very optimistic

growth of induced traffic or are not consistent with historical trends. For more detail, please see

Appendix A.

Fitch categorizes toll roads into seven primary types: highway systems and large networks;

urban bridge/tunnel systems; international bridge crossings; urban radial and ring road

systems; managed lanes; stand-alone facilities; and road portfolios. The text box below

highlights Fitch’s definitions for each category.

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Asset Types

Highway Systems and Large Networks

These facilities represent critical arteries and networks of roads that connect major economic and population centers within and across a country

or state. They have a long history of demonstrated demand and are characterized by diversified traffic types, routes and asset maturity. As a result

of this diversity, they are often relatively resilient to poor economic conditions, but may also experience less growth due to their maturity.

Commercial vehicle or discretionary traffic volumes may be higher relative to other asset types, but the diversity of traffic types lends itself to

revenue stability. These systems and networks typically have a strong competitive position and capital expenditure needs that are predictable.

Urban Bridge/Tunnel Systems

These facilities provide strategic access to a metropolitan area’s urban core that would otherwise be limited due to geographic boundaries and the

demand function is usually well known. Given their monopolistic position, they have the greatest economic rate-making flexibility. However, toll

rates are much higher than elsewhere to support much higher construction and preservation costs. In the U.S., these facilities may also be used to

fund transfers to local government or a regional transit or planning agency on a subordinate basis (given strong cash flow generation).

International Bridge Crossings

These facilities provide key cross-border links between two countries, typically over a body of water, and are vital for trade relations between the

two countries. They tend to face limited competition, usually benefitting from high barriers to entry given geographical constraints, potentially costlyinfrastructure and the requirement of federal immigration and customs facilities. Although monopolistic or facing limited competition, traffic may

exhibit some volatility given exposure to commercial traffic (and, hence, to the economic environment on both sides of the border) and

geographical concentration.

Urban Radial and Ring Road Systems

These facilities include strategic rings around a metropolitan area and/or radial roads that emanate from the central business district out to large

suburban areas. Traffic demand on such facilities is usually more stable than for greenfield projects given the high percentage of commuter traffic,

and there is usually a 10- to 20-year history of performance. However, continued expansion adds some degree of demand uncertainty. These

assets are characterized by a large commuter base that is relatively inelastic to toll rate increases as long as employment remains solid. Revenue

risk on these facilities is usually low, but they often have moderate to high toll rates given the cost of construction in urban areas.

Managed Lanes

These facilities are typically built in the median of existing and highly congested urban radial or ring roads. The key difference is that the toll rate is

dynamic and set at a level to ensure certain highway travel speeds, even when other lanes are congested. While traffic demand on the corridor

may be fairly predictable, what is much more uncertain is the price a driver would be willing to pay to use the managed lanes for travel time savings

and reliability. In addition, small changes in corridor volume or small improvements to interchanges can have dramatic effects on managed lane

traffic volume. As a result, revenue tends to be much more volatile than for other toll road types. Given their unique characteristics, Fitch’s analysis

of managed lane projects takes into account additional factors as compared to standard toll roads — for more details on how Fitch applies its toll

roads criteria in the analysis of managed lanes projects, see Appendix B.

Stand-Alone Facili ties

These facilities comprise a wide range of project types, including single bridges, tunnels, congestion relievers and portions, or distinct segments of

ring roads and national highway links. Demand risk spans the entire spectrum from very predictable to highly uncertain, depending on, among

other things, project age and purpose. Fitch classifies stand-alone toll road projects into two groups: greenfield/start-up projects where demand isuncertain and projects where there is a demonstrated history of demand. The key distinction is that these projects rely on a sole facility and a

relatively small geographical service area for their revenue, and thus are much more exposed to event risk.

Road Portfolios

To the extent that debt is supported by a combination of disparate road segments that are operated by a single entity pursuant to one or a series of

concession agreements, each component will be evaluated according to the characteristics described above. If the revenues generated by the

portfolio are truly diversified, the consolidated revenue stream could be viewed as having stronger attributes than any of the single components.

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Revenue Risk: Volume

Volume uncertainty varies significantly depending on several factors, such as the main purpose

of the road, the type of area it serves, the level of competition from other roads and modes of

transportation it faces and the general macroeconomic environment. Motorization rates can

also be an important variable in assessing the traffic profile for toll facilities in developing

countries where such rates may be low but are escalating.

Volume risk for a given toll road is often primarily affected by regional economic and

demographic trends, congestion on, and interconnectivity with, free alternatives, competition

from other modes of transport and some of its physical features, such as the route it serves, its

capacity and network interconnectivity. A diverse traffic base reflecting a combination of intercity,

commuter, business-related and recreational travel with a wide range of origins and destinations,

provides for a traffic demand profile more resilient against economic cycles.

Fitch will assess concentration risk or dependence on particular types of traffic, such as heavy

goods vehicles (HGV) or recreational travel, and origin/destination markets to determine

resilience against potential shifts in economic make-up of the service area and correlation with

business and industry cycles.

In particular, Fitch generally views a dependence on commercial vehicles for a significant share of

revenues as increasing a toll road’s exposure to economic downturns. Additionally, cross-border

facilities will, by definition, be exposed to economic activity in the neighboring country, meaning

traffic volumes may be relatively volatile. Cross-border facilities are also exposed to fluctuations in

currency exchange rates that can change driver behavior. Another factor Fitch will assess is the

degree to which a toll road may be affected by a gas price spike. This is particularly important for

noncommuter facilities given that leisure and intercity traffic tends to be more sensitive to gas

price fluctuation than commuter traffic.

Competitive toll facilities are those that provide a more direct route, faster travel times and ease of

travel relative to other toll-free roads or other modes of transportation within a given corridor. A toll

facility’s competitiveness is primarily measured by travel time savings that it offers over the entire

journey compared to free alternatives, and it is the value of these time savings to motorists

relative to the toll paid. These key inputs to traffic forecasting are subject to uncertainty, since

they are based on assumptions regarding motorists’ perceived value of time saved, underlying

economic, demographic and land use trends, and the expected physical capacity of the entire

regional transportation network.

Price elasticity, which reflects the degree to which traffic volume will reduce directly as a result

of a change in price, varies based on the toll road’s competitive position, asset type, strength of

the service area and economic conditions at the times toll rates are increased. Highway

systems and large networks typically demonstrate low price elasticity given their competitive

position, as do monopolistic urban bridge systems. Urban ring roads and radials may also

prove relatively inelastic to price, while stand-alone facilities are likely be more price elastic.

Managed lanes by definition are very price elastic, typically operating at or just under the

revenue maximization point to ensure free flow traffic conditions. Competitive position

notwithstanding, price elasticity is higher for facilities whose toll rates are relatively high than

those currently charging lower rates.

Revenue Risk: Price

The ability of an owner or operator to implement toll increases varies widely, with long-term

concession agreements, leases, or licenses often giving private operators relatively restrictive

authority, while public entities may enjoy virtually unlimited flexibility.

Specific TollingSituations

Shadow tolling: Instead of

levying tolls on the user, the

concessionaire is paid by the

grantor according to a formulareferencing the number and type

of vehicles and distance travelled.

These transactions generally rely

on banding mechanisms as set

out in the concession contract,

where the tariff paid by the grantor

per vehicle decreases as traffic

volume increases above set

thresholds. Most schemes are

designed so that the lowest band

generates sufficient cash flow to

meet debt service obligations.

Since road users do not actually

pay a toll, they are not sensitive to

shadow toll increases, and so

volume risk is partially offset.

Demand risk does still exist,

however, given that revenue is

dependent on traffic volume and

composition that may be

somewhat correlated with

economic cycles. Furthermore,

higher traffic volumes and moreHGVs than projected could result

in increased maintenance costs

that may not be fully compensated

in higher band tariff rates.

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Notwithstanding political risk and proximity to the point of revenue maximization, Fitch would

view unlimited rate-making authority as providing more credit protection than rate-making

authority limited by a defined formula or subject to regulatory approval. Restrictions to revenue-

raising ability increase the exposure to expense growth eroding financial margins over time.

Fitch generally assumes that private sponsors will raise rates to the maximum level allowed

under the contract, implying that they are unlikely to have any flexibility to raise rates reactivelyto mitigate the effect of a shock or change in conditions.

While unlimited rate-making authority is a stronger attribute, it can be hindered by the political

environment in which the asset operates. Public entities have a track record of limiting toll

increases due to political considerations, regardless of their economic ability to raise rates.

When absolutely necessary, increases are generally implemented in combination with planned

capital improvements or system expansions. Reluctance among public toll road owners to

increase tolls creates the potential of timing risk that may lead to a reduction in credit strength

at certain times. Barring a demonstrated track record of implementing increases in a timely

fashion, Fitch will view the plans for future toll increases with skepticism, assuming that such

increases are implemented later, and possibly less, than planned.

Infrastructure Development/Renewal

Fitch considers reinvestment plans in the context of the toll road’s economic life and traffic

capacity headroom based on current traffic levels and takes into account the need for future

leverage to preserve or, where necessary, expand the asset.

Projects with automatic and guaranteed funding for capital maintenance needs such as

regulated asset base systems, and those that have accounted for these costs in the financial

forecast with reasonable contingency and forward-looking cash set-aside mechanisms will, all

else equal, be viewed as having a stronger attribute. Those with predictable but higher costs

for capital improvement or that have less detailed plans will be viewed as having a midrange

attribute. Lastly, those toll roads for which there is uncertainty around the level and timing of

future investment may have their ratings constrained.

Termination-Compensation Risk

Project Company Default

The risk of early termination of any key contract, notably the concession contract or the license

to operate, due to an event default of the project company is addressed in all other sections of

this criteria report. Concession contracts have varied provisions for termination compensation

payments to be made following a default by the concessionaire in operating the related facility.

The amount and timing of payment are matters affecting recovery prospects for investors and

are not considered in the rating of the issuer’s related debt.

Toll facilities governed by long-term concession, lease or license agreements have statedexpiration dates and generally also feature performance requirements that, if missed, can lead

to early termination. In this scenario, lenders would lose their primary security revenue

generated from the asset. Fitch evaluates the risk of termination in the context of performance

standards and the ability of the operator to meet them. Particularly stringent standards could be

reflected as a rating constraint.

Specific TollingSituations (Continued)

Variable tolling: Two commonly

used forms of variable tolling are

time-of-day and dynamic tolling.

With time-of-day tolling, the tollrate schedule for each period is

predetermined based on historical

traffic data, typically with a

morning and evening rush hour

rate and an afternoon, late night

or weekend rate. For dynamic

tolling, toll rates are adjusted in

real-time based on live traffic

information; vehicle speed and

volume is processed through an

algorithm that recalculates toll

rates at very short time intervals.

Both applications are traffic

management tools that are

intended to modify driver

behavior. Dynamic tolling is

intended to ensure that traffic

constantly flows, with algorithms

either designed to optimize toll

revenue or vehicle throughput.

Users are, at least in theory,

guaranteed to move at highway

speeds and as a result pay muchhigher tolls for predictable travel

times.

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Termination at Grantor’s Option

The grantor of a concession may also retain the option to terminate the concession for, among

other reasons, its own convenience, regulatory purposes or public necessity. The probability of

exercising such an option cannot be adequately factored into a rating. Therefore, Fitch expects

that the risk of early termination in cases other than a project default are covered by an

appropriate compensation payment (i.e. sufficient to cover the full repayment of rated debt

instruments and avoid a default). If such optional termination risks are material and not

adequately or timely compensated, the transaction may not be rateable.

Debt Structure

Fitch focuses on how well a proposed capital structure is matched to the characteristics of the

project being analyzed and the margin of safety provided to lenders via financial covenants and

leverage limitations.

Toll road assets generally exhibit relatively stable T&R profiles with occasional interruptions in

revenue growth, making them more suited to a capital structure with a fixed cost and long tenor.

Nevertheless, many projects are successfully financed with varying degrees of floating-rate

debt and interest rate hedging, or bullet maturities, and in some markets this is the norm.

However, all other risk factors aside, a project with unhedged variable-rate debt or refinance

risk is exposed to market forces out of management’s direct control. As such, Fitch considers

these projects would require more financial flexibility.

Fitch will evaluate debt tenor to ensure that maturity does not go beyond the useful life of the

project. Given the challenge of forecasting economic trends and public policy, Fitch will tend to

view debt with a longer tenor more cautiously. Similarly to tenor, the rate of amortization will vary

by project type. Greenfield projects would be expected to have a structure that provides more

flexibility to compensate for greater forecasting risk and ramp-up risk, while projects with a long

operational history may not need this level of flexibility. All else being equal, significantly back-

loaded amortization will be viewed as a weaker attribute on an operating project with a long

history. Where back-loaded or accreting debt exists, Fitch will not only evaluate annual debt

service coverage ratio (DSCR), but also the loan life coverage ratio (LLCR) as interest-only

periods can distort true financial flexibility.

Security Package and Creditor Rights

A key underpinning to the economic and financial rationale for a credit rating is the financial

covenant package and other legal aspects of the financing structure. Fitch’s evaluation focuses

on pledged revenues, rate covenants, leverage and distribution tests, flow of funds, required

liquidity and maintenance reserves, and third-party guarantees.

The credit analysis will also include a review of remedies under an event of default, lender

step-in rights and positive/negative covenants tied to concession obligations and applicable law.

All else being equal, Fitch considers a scenario in which the security package is materially

stronger than basic levels to be a credit positive.

Financial Profi le and Rating Case

Fitch evaluates a project’s ability to service debt under base and rating case scenarios as

described below. In determining a rating, Fitch will evaluate the qualitative attributes described

above in conjunction with the financial metric outputs of the developed scenarios, comparing

with peers as part of its analysis.

Coverage or Leverage?

Both coverage and leverage are

important considerations for most

credits, and will be broadly equally

considered.

For pure project finance assets,

stabilized leverage is not a relevant

concept since, by design, leverage

will be very high initially

(exacerbated if the asset is

exposed to risks associated with

ramp-up) falling steadily to zero at

maturity. As such, coverage is a

much more important

consideration.

For issuers that maintain largely

interest-only, non-amortizing, debt

profiles, coverage only addresses

interest cover, not the ability for

debt to be retired within the

remaining asset life. For these

credits, Fitch will mostly use

leverage indicators and normalized

coverage ratios, such as project life

cover ratio and loan life coverage

ratio. It may, on occasion, also

calculate a “synthetic debt service

coverage ratio as defined in theMetrics section of this report.

However, this metric can only give

a broad indication as to debt

affordability.

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For issuers with bullet debt, key metrics are slightly different. A combination of the post

maintenance interest cover ratio (PMICR) and PLCR (see definitions in Metrics section on page

16) offer visibility on the two key dimensions that the rating analysis focuses on: (i) the PMICR

reflects the actual headroom to service the fixed charges on any single debt payment maturity

and (ii) PLCR measures the ability to deleverage over time in line with the concession maturity

profile. It should be noted that refinancing risk is inherently present with respect to bullet debt

structures, and such refinancing risk will be analyzed as part of Fitch’s analysis of the project’s

debt structure.

Certain unique features of publicly owned assets make it possible, all else being equal, for debt

secured on these assets to be rated higher than similar privately owned concessions. One

such feature is the rate covenant: a coverage trigger that, if hit, compels the road operator to

take action, including raising toll rates, in order to mitigate the effect of weakening coverage. If

the operator has unlimited flexibility to raise toll rates, and if it has economic flexibility to do so,

Fitch sees rate covenants as a potentially important tool in enhancing credit quality. A second

important feature is the large cash retention of many public authorities that are not compelled

to make dividend payments to shareholders, albeit that some may be compelled to make

subordinated transfers to the state or other sister authorities.

Greenfield projects are much more exposed to forecasting/completion risk, and by definition have no

operational history or demonstrated management approach. This exposure results in a much more

conservative set of assumptions than those made on operational projects with the same rating.

Ultimately, the rating case for a low investment-grade greenfield project typically shows coverage of1.0x in the first few years, assuming small liquidity draws, but growing flexibility and DSCRs over

time. A ‘BB’ category project would show liquidity draws over several years with coverage growing

to just over sum sufficiency but not much more than that. Despite the possibility of lower metrics in

the early years, rating case metrics for such projects would be expected to improve over time such

that average coverage is in line with or above levels indicated in the table above.

A key component of Fitch’s quantitative analysis is developing an understanding of the

project’s dependence on future revenue growth in order to service its debt, whether as a result

of increasing traffic over time or the ability to increase tolls over time in line with, or above,

Indicative Rating Case Coverage and Leverage — Large MatureNetworks and Major Urban Bridge Systems wi th Amor tizing Debt RatingCategory

AverageCoverage

a

StabilizedLeverage

b

Dependence onGrowth Special Considerations

AA 1.8x and above Up to 8.0x None or VeryLimited

Predominantly stronger attributes; if one of volume or price ismidrange, offset by very conservative debt structure/metrics.Profit motive means private operators unlikely to be rated inthis category.

A 1.4x and above Up to 10.0x Low Balance of stronger and midrange; if both volume and priceattributes scored midrange, more conservative debt structureand metrics would be expected.

BBB 1.3x and above Up to 12.0x May BeSignificant

Predominantly midrange attributes; one weaker attributemay be offset by more conservative debt metrics. Higherdependence on growth only for facilities with strongeroperating profiles.

B/BB 1.0x and above Above 10.0x High Weaker operating profile; rating category likely to bedetermined by particular characteristics of project

aTypically average debt service coverage ratio, or minimum loan life coverage ratio (LLCR) or project life coverage ratio

(PLCR), calculated excluding extraordinary outliers. If LLCR and PLCR reflect large cash balances, slightly highermetrics may be expected.

bLeverage is typically net debt to cash available for debt service (CFADS), where only cash

reasonably expected to remain available for debt repayment is reflected. Indicative leverage guidance assumes longremaining asset life (at least 20 years); assets with shorter remaining life would be expected to deleverage in line with theresidual asset life. The numbers presented in the table for stabilized leverage guidance are not applicable for projectfinancings that deleverage over a fixed term or for other issuers in deleveraging mode.

Source: Fitch.

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inflation. In order to gauge this dependence on revenue growth, Fitch calculates the break-

even revenue growth rate from the most recent historical annual revenue, or from the assumed

Fitch base case opening year revenue for greenfield projects. This break-even revenue growth

rate is determined as being the growth rate that, when applied each year to revenue, results in

a minimum DSCR of 1.0x over the projection period, after the use of all available cash reserves.

In order to undertake this analysis for bullet debt issuers, it is necessary to make assumptions

as to debt service costs over the remaining asset life beyond current bullet debt maturities. In

order to do so, Fitch assumes in-place bullet maturities will be refinanced with debt amortizing

according to an annuity profile over a term no longer than 25−30 years or the remaining asset

life, whichever is shorter, and whose interest rate will reflect Fitch’s conservative view as tohow base rates and interest rate margins for the relevant issuer type may evolve over time.

An alternative measure of dependence on growth is maximum annual debt service (MADS)

coverage, as defined below under Metrics, albeit that this metric is only applicable for fixed-rate,

fully amortizing debt structures. A MADS coverage ratio of 1.00x or greater would indicate a

project with no dependence on revenue growth (and, in fact, some tolerance of a revenue

decline); a ratio of 0.75x−1.00x would indicate low or limited dependence on growth; a ratio of

0.50x−0.75x would suggest significant dependence on growth; and a ratio of less than 0.50x

would suggest a high dependence on growth.

Fitch may also consider undertaking all-cost break-even analysis. This analysis is particularly

important with respect to road projects financed on the basis of an availability-based payment

mechanism, whose exposure to these costs may be significant. While usually a less importantcredit metric for toll roads exposed to demand risk, Fitch may consider this useful, particularly

for comparison purposes.

Ratios are not assessed in isolation and a project’s rating may be constrained by a “weaker”

assessment on a key rating driver notwithstanding coverage ratios that may otherwise suggest

a higher rating.

Indicative Rating Case Coverage and Leverage —Small Networks and Stand-Alone Toll Roads RatingCategory

AverageCoverage

a,b

StabilizedLeverage

b,c

Dependence onGrowth Special Considerations

AA — — — Unlikely based on asset size/

geographical concentration A 1.7x and above up to 8.0x Limited Balance of stronger and midrange; likely to be mature,

stabilized, relatively low-leveraged assetsBBB 1.4x and above up to 10.0x May Be

SignificantPredominantly midrange attributes; may include recentlybuilt assets in ramp-up that may be dependent on significantrevenue growth to meet future debt service, or mature butvolatile assets.

B/BB 1.0x and above 8.0x and above High Weaker operating profile; rating category likely to bedetermined by particular characteristics of project

aTypically average debt service coverage ratio (DSCR) or minimum loan life coverage ratio (LLCR) or project lifecoverage ratio (PLCR), calculated excluding extraordinary outliers. If LLCR and PLCR reflect large cash balances,slightly higher metrics may be expected.

bShadow toll roads may have slightly lower metrics for each rating category than

indicated above.cLeverage is typically net debt to cash available for debt service (CFADS), where only cash reasonably

expected to remain available for debt repayment is reflected. Indicative leverage guidance assumes long remaining assetlife (at least 20 years) — assets with shorter remaining life would be expected to deleverage in line with the residualasset life quickly. Stabilized leverage not relevant for project financings that deleverage over fixed term. The numberspresented in the table for stabilized leverage guidance are not applicable for project financings that deleverage over afixed term or for other issuers in deleveraging mode.

Source: Fitch.

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Metrics

As indicated at the outset, this criteria report covers a wide range of toll facilities. As a result,

metrics utilized are tailor made, depending on the asset type and also on the debt structure

and security package employed. Fitch will review some combination of the following when

determining ratings:

• Average DSCR is the average of the ratio in each year over a projection period of cashavailable for debt service (CFADS) to debt service payable in that year. Fitch will typically

not include available liquidity or drawings as revenue. The projection period Fitch will use

in making this assessment will depend on the nature of the asset. For assets operated

under fixed-term concessions, Fitch will generally consider projections through the entire

life of the debt. For mature, stable assets owned outright, or for corporate-like issuers with

a diversified portfolio of assets and/or a good track record of earning concession

extensions, Fitch will generally consider five- or 10-year projection periods. For non-amortizing debt, Fitch may estimate the theoretical capacity of the project to cover debt

service by calculating a synthetic DSCR or with LLCR and PLCR.

• LLCR and PLCR over the term of the debt, using the weighted average cost of capital asthe discount rate. LLCR is the ratio of the net present value of net cash flows to

outstanding net debt. PLCR is the ratio of the net present value of net cash flows to the

term of the concession agreement, and is particularly useful in evaluating refinance risk or

when addressing issuers with non-amortizing debt.

• PMICR, expressed as the ratio of CFADS (post-capital expenditure) to interest expense, isthe true measure of financial flexibility of issuers with non-amortizing debt structures.

• MADS coverage is calculated as being current annual CFADS divided by the maximumannual debt service over the life of the debt. This metric is valuable when assessing fixed-

rate, fully amortizing debt structures.• Net debt/CFADS: Fitch will typically only reflect the cash portion of the debt service

reserve and other cash that can reasonably be expected to remain available to lenders.

• Days cash on hand (DCOH) is a measure of how long the project could continue meetingoperating costs only using available liquidity. It is defined as being the ratio of cash that is

available to meet operating and maintenance costs to average daily operating expenses,

which are calculated as being annual operating expenses divided by 365. Notably, debt

service or major maintenance reserve balances are excluded from this calculation.

• Debt/lane kilometer or lane mile.

Indicative Rating Case Coverage and Leverage —Bullet Debt Issuers (Large Networks) RatingCategory PMICR

a PLCR

b

StabilizedLeverage

c

Dependenceon Growth Special Considerations

AA — — — — Unlikely based on debt structure

A 2.5x andabove

1.5x andabove

Up to 10.0x Limited Balance of stronger and midrange; likely to be mature,stabilized, relatively low-leveraged assets

BBB 2.0x andabove

1.4x andabove

Up to 12.0x May BeSignificant

Predominantly midrange attributes; may include mature butmore volatile assets, or assets with higher level of debt.

B/BB 1.5x andabove

1.0x andabove

Above 10.0x High Weaker operating profile; rating category likely to bedetermined by particular characteristics of project

aTypically average post maintenance interest cover ratio (PMICR), calculated excluding extraordinary outlier years.

bTypically minimum project life coverage ratio (PLCR), calculated excluding extraordinary outlier years. PLCR includes

cash reasonably available for debt service.cLeverage is typically net debt to cash available for debt service (CFADS),

where only cash reasonably expected to remain available for debt repayment is reflected. Indicative leverage guidanceassumes long remaining asset life (at least 20 years) — assets with shorter remaining life would be expected todeleverage in line with the residual asset life. The numbers presented in the table for stabilized leverage guidance arenot applicable for project financings that deleverage over a fixed term or for other issuers in deleveraging mode.Source: Fitch.

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• Two-axle toll rate/kilometer or mile: Fitch will take into account whether the customary tollrate is electronic or cash, and whether a majority of users are commuters or commercial

vehicles.

• Opex/lane kilometer or lane mile.• Capex/lane kilometer or lane mile.•

Debt/equity ratio for greenfield projects or acquisitions.Fitch may also make reference to other metrics in addition to those listed above in reports or

rating action commentaries on individual issuers as made relevant by covenants or market

convention.

Peer Analysis

When reviewing a toll road against its peers, Fitch first looks for a project with similar

economic characteristics, for example, it may not make sense to compare all risk factors of a

congestion reliever or stand-alone facility with a bridge system or a national highway link. In

particular, projects with similar franchise strength will be compared with each other. The

attribute assessment for debt service and counterparty risk, which incorporates financial

metrics, will also be used. Relative judgments will be made regarding how an otherwise strong,

midrange, or weak franchise is enhanced or negatively affected by leverage and other

financial measures of financial flexibility.

Typical Toll Road Peer Group ComponentsTransaction A Transaction B Transaction C

Facility Type Large Network Stand-alone Concession Bridge

Status Operational for 30 years Operating for 10 years Construction

Completion — — Midrange

Revenue — Volume Stronger Midrange Midrange

Revenue — Price Midrange Midrange Midrange

Infrastructure/Renewal Midrange Stronger MidrangeDebt Structure Stronger Midrange Stronger

Current DSCR (x) 1.4 1.5 —

Average DSCR (x) 1.5 1.7 2.1 (Projected)

Lock-up DSCR (x) 1.3 1.3 1.5

Average LLCR (x) 1.6 1.7 2.2 (Projected)

Rating A BBB BBB−

Note: The inclusion in this example of three different facility types is for illustrative purposes only. Normally, credits of thesame facility type only would be included. The ratings included in the table are point-in-time and included for illustrativepurposes only.Source: Fitch.

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Appendix A

Main Variables in Fitch Cases Mature Public Sector Enterprises, Corporate-Type Issuers or Project Finance-Type Issuers

Traffic Assumptions reflect i) historical performance, ii) regional traffic patterns, iii) number of years of operation, iv) T&R report analysis,v) Fitch Public Finance expectations for regional economic/demographic trends and vi) will be checked against Fitch GlobalEconomic Outlook assumptions for key drivers (GDP, private consumption).

Toll Rate Increases Assumptions reflect concession terms, inflation assumptions (see below), concessionaire and authority track record atimplementing/allowing toll increases.

Opex Fitch will assess the project’s opex profile as validated by the IE when applicable, also taking into account the project’s historicalopex performance, programmed efficiency gains as well as inflation expectations.

Capex Fitch will assess the project’s capex profile as validated by the IE, also taking into account the project’s historical capexperformance as well as inflation expectations.

Inflation Fitch global outlook used for near-term assumptions, extrapolated forward into long term.

Rating Case Appropriate cyclical traffic and opex stress assumptions will be applied to the extent appropriate. If there is a material exposedrisk to significant planned capital works, an additional capex stress may also be incorporated.

Greenfield or Ramping-Up Projects

First Full Ramped-Up Year Traffic Traffic determined conservatively: three- to five-year ramp-up period post-completion assumed; no benefit from landdevelopment; discounted value of time assumption; reduced market share assumption; minimal HGV penetration; significantinitial uncollected tolls.

Ramp-Up Period Traffic growth from assumed opening year traffic level significantly below first fully ramped-up year traffic level.

Post Ramp-Up Traffic Growth Assumed to stabilize at low-moderate growth rate depending on regional economic and demographic forecasts; checked against

Fitch Global Economic Outlook assumptions for key drivers (GDP, private consumption).Toll Rate Increases Assumptions reflect concession terms, concessionaire and authority track record at implementing/allowing toll increases.

Opex Fitch will assess the project’s opex profile as validated by the IE, also taking into account inflation expectations.

Capex Fitch will assess the project’s capex profile as validated by the IE, also taking into account the project’s historical capexperformance as well as inflation expectations.

Inflation Fitch global outlook used for near-term assumptions, extrapolated forward into long term.

Rating Case Appropriate adjustments to ramp up period and opening year traffic, first fully ramped-up year traffic, and traffic growth thereafter.Opex stress assumptions will be applied to the extent appropriate.

Note: While the types of variables that Fitch will consider when forming the Fitch base and rating cases will be broadly the same for different types of mature toll roadentities, it is probable that the perceived exposed risk to downturn, volatility or shock in these variables could differ by project type. As such, Fitch is likely, all else beingequal, to apply more stringent stresses in its base and rating cases for a small stand-alone facility with low perceived ratemaking flexibility than it is to a large, diversifiednetwork of toll road facilities with higher perceived ratemaking flexibility.Source: Fitch

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Appendix B: Applicat ion of Criteria for Managed Lanes Projects

By design, managed lane (ML) projects face some unique challenges when compared to

standard toll roads that require an enhanced range of revenue risk factors to be analyzed. This

appendix sets out how the toll roads criteria are adapted and applied for ML projects and the

below table provides a summary of ML revenue risk considerations.

In essence, volume risk analysis is conducted in two parts, firstly considering the volume

characteristics of the corridor as a whole (including free access general purpose lanes (GPL)),

before separately considering aspects of the ML’s design, configuration and price elasticity of

users that affect volume risk.

Corridor Volume Risk: Analysis of the underlying traffic demand for the corridor as a whole,

and volatility of such demand over time is important since it is congestion in the corridor — not

just the priced MLs — that ultimately drives demand for MLs. Factors considered include the

nature of the area the road serves and its role in the wider regional transportation network, the

level of competition it faces, regional economic and demographic trends, user travel/origin and

destination patterns and carpooling activity.

In practice, Fitch would generally expect ML projects to be implemented in congested corridorswith worsening driving conditions driven by population and/or employment growth. Analysis of

corridor volume risk shares a lot in common with the assessment of volume risk for a standard

toll road, particularly with respect to regional travel patterns and socioeconomic trends. The

corridor volume on these road facilities would typically be expected to demonstrate little

volatility in traffic demand over time, with relatively quick recoveries observed after any cyclical

shocks. The majority of these facilities have stronger corridor characteristic assessments,

reflecting the importance of these corridors in their respective regional transportation networks.

A weaker corridor assessment would likely constrain resulting ratings to the subinvestment

Managed Lanes Revenue Volume Risk Factors Assessm ent Revenue Risk — Corr ido r Vo lum e Revenue Risk — Managed Lanes Charac ter is tic s

Stronger • Proven resilient corridor traffic base with relatively low volatility.• Near monopolistic characteristics - e.g. an essential road with a large

commuter base, limited competing roads, or other modes oftransportation.

• Large and robust MSA with strong socioeconomic trends.

• Inherent volatility in managed lanes traffic and revenue is inconsistentwith a 'Stronger' risk assessment.

Midrange • Proven corridor traffic base with moderate volatility.• A relatively large percentage of commercial or discretionary traffic; an

essential road facing some degree of competition from competing roadsor other modes of transportation.

• Mid-size MSA with solid economic underpinnings. Moderate growth areaor growing region with some dependence on future development.

• Proven ML traffic base with relatively moderate volatility. Price elasticityof demand of toll increases is demonstrably low to moderate.

• Moderate exposure to exempt vehicles (including scenarios in whichcompensation is received for exempt vehicles).

• Moderate-to-high levels of congestion during peak commuting periods(including shoulder periods), but relatively free flowing conditions duringother time periods. Limited two directional congestion.

• Efficient configuration. Moderate capture rates considering theconfiguration of the road. Moderate average trip distances as comparedto the full length of the project.

Weaker • Corridor traffic with limited or no history; relatively high volatility.• A large percentage of leisure or single purpose traffic; meaningful

competition or expansion of competing facilities; or greenfield projects.• Small MSA with below average wealth levels and stagnant to decreasing

socioeconomic trends.

• Lack of demand history. Unproven or prolonged weak ramp-up period.Elevated volatility to economic shocks and relatively high seasonalvolatility. Untested or demonstrably high price elasticity of demand.

• Loose free-access and other policies governing access to MLs thatprevents pricing as an effective means of control of access to MLs andlimit revenue potential.

• Configuration (in terms of entry/exit points and ramps/reversibility andbarriers) that inefficiently correlates with congestion points and trafficpatterns, under-utilizes highway connections and ultimately discouragesusage and/or encourages violations. Increase in free GPL capacity thatwould meaningfully improve GPL flow eliminating congestion levels overa medium-to-longer term.

• Low levels of congestion even in the peak periods. Low capture ratesconsidering the configuration of the road. Very low average tripdistances as compared to the full length of the project.

Source: Fitch.

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grade level given the correlation between the underlying corridor characteristics and the degree

of essentiality of the MLs.

Managed Lanes Characteristics: Fitch assesses ML characteristics that have a meaningful

implication on revenue generation capability. Fitch has studied the effects of various factors

wherever data is available and has applied such findings in its analysis. It should be noted that,

given the inherent price elasticity and demand volatility of these dynamically priced congestion

relieving facilities, a stronger assessment of this risk factor is highly unlikely.

The ML characteristics that Fitch considers include:

Volatility of the ML traffic base and ramp-up performance.

The exposure to vehicles (if any) that can access the MLs toll-free: one of the most

important factors assessed under ML characteristics component is the high

occupancy vehicle (HOV) policy and other policies governing free access to MLs.

Different approaches to access policies make careful comparison essential.

ML configuration, including number and location of access points, lane separation,

signage, reversible/two-way, number of MLs: a configuration that inefficiently

correlates with congestion points and traffic patterns, under-utilizes highway

connections and ultimately discourages usage and/or encourages violations could

adversely affect a project’s rating. This includes additional free capacity

enhancements that result in significantly improved GPL traffic flow that would likely

cause a step change in traffic shift to MLs.

Consistency of peak-hour congestion levels, and length of revenue-generative peak

and shoulder-peak periods: facilities featuring consistent, demonstrated, acute

congestion over extended time periods during the day beyond just the peak hours as

evidenced by high density levels and low speeds in the GPLs, and resulting in high

capture rates, are viewed as having the highest degree of congestion and will likely

have an overall midrange revenue profile. Conversely, low levels of congestion, even

in the peak periods, and minimal capture rates would be assessed as weaker.

Price elasticity of ML users and pricing power, indicated by peak-hour toll rates/mile:

it is generally assumed that private operators will raise rates to maximize revenues,

with little additional flexibility to raise rates reactively to mitigate the effect of economic

shocks versus a public operator that may retain some such flexibility in underpriced,

quiet, off-peak periods under a throughput maximization policy. ML projects that

generate higher average peak tolls while optimizing revenues and achieving strong

tolled capture rates would generally be viewed as having midrange pricing power.

Assess ing Overal l Volume Risk: For ML projects, the overall “Revenue — Volume Risk” key

rating driver score is determined by assessing the combined effect of the ‘Corridor Volume

Risk’ and ‘ML Characteristics’ scores. The combination of corridor and ML characteristics

considerations determine the overall volume risk assessment, leading to one of the three

scores: stronger, midrange or weaker. In practice, Fitch would expect few ML facilities to

achieve a “Revenue — Volume Risk” score of “stronger,” since, in most cases, it will be difficult

to achieve an “ML Characteristics” score of above midrange.

Assess ing Price Risk: Price risk analysis is broadly comparable with that of standard toll

roads, focusing on the toll setting framework and legal/political flexibility to adjust tolls.

Unlimited rate-making flexibility would be considered a stronger feature that is common to

many ML projects. While caps can serve to limit rate-making flexibility, minimum toll rate

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requirements (or toll rate floors) could also have a detrimental effect on revenue generation

and constrain the score to weaker.

Debt Structure Liquidity/Flexibility: By their very nature, MLs will have significantly more

volatile traffic and revenue profiles, reflecting their role as pure congestion relievers featuring

dynamic pricing mechanisms that maximize throughput or revenue. Furthermore, ramp-up on

these facilities may be significantly more difficult to predict than for standard toll roads, given

the apparent sensitivity of potential ML users to small configurational or pricing changes. In

Fitch’s view, therefore, ML projects typically require significantly greater levels of debt service

flexibility or structural liquidity than standard toll roads to allow project debt service obligations

to be met (or deferred) during a prolonged or more severe ramp up or cyclical downturns. In

fact, it may not be possible to rate greenfield ML projects without such enhanced credit support

incorporated.

ML Base and Rating Cases: Given the unique configurational and operating characteristics

and demand profiles of each individual ML facility, Fitch is of the view that each project requires

a somewhat bespoke analytical approach — detailed in Fitch’s rating publications for each

rated project — making it difficult to set out benchmark Fitch base and rating case analytical

assumptions. Nevertheless, the following represent the key areas of analytical focus in Fitch’sanalysis:

• First Fully Ramped-Up Year — the largest single area of risk to a project’s revenue profilerelates to the first fully ramped up year, or stabilized traffic level. Based on the results of

the various sensitivity runs performed on the sponsor model, Fitch will test the veracity of

the model by running a combination of sensitivities, and develop its base and rating cases

based on the outputs that most adequately reflect

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