DBRS Comments on the Teranet Holdings LP Agreement with the Province of Manitoba

DBRS notes that Teranet Holdings LP (Teranet or the Company, rated BBB (high), Stable trend) yesterday announced that it has entered into an agreement in principle with the Province of Manitoba (Manitoba or the Province) for a 30-year licence to operate the Province’s real and personal property registration system.

Under the terms of the agreement, Teranet will pay the Province $75 million on closing and will pay a royalty for the exclusive use of the system, estimated at $11 million per year initially, growing to an estimated $24 million by the end of the contract. Teranet will also make an additional investment of approximately $35 million to upgrade the registry infrastructure. DBRS understands that the transaction will be funded internally, with no new debt required at close.

DBRS noted previously that one of the challenges facing Teranet is concentration risk arising from the fact that almost all revenue is generated in Ontario. Manitoba is a much smaller province than Ontario, with far fewer transactions and registrations, but this agreement will go some way in diversifying Teranet’s revenue base. DBRS also notes that Manitoba enjoys a well-diversified economy. In the absence of new debt, the additional revenue arising from the agreement should benefit Teranet’s credit metrics and has the potential to mitigate softness in search and registration volumes in Ontario (as has been seen in the most recent quarter) in future years. Given Teranet’s experience and expertise in Ontario, and based on information provided in confidence to DBRS by the Company, DBRS expects this development to be modestly positive for Teranet’s credit profile.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodology is Rating Public-Private Partnerships, which can be found on our website under Methodologies.