DBRS Confirms Accès Recherche Montréal L.P. at A (low)

DBRS has confirmed the Senior Secured Debt rating of Accès Recherche Montréal L.P. (ProjectCo) at A (low) with a Stable trend. ProjectCo is the special-purpose vehicle created by Fiera Axium Recherche L.P. and Meridiam Infrastructure SICAR to design, build, finance and maintain a new 68,431-square-metre research centre under a 33.3-year public-private partnership (PPP) with the Centre Hospitalier de l’Université de Montréal (CHUM or the Hospital), one of Québec’s largest health-care institutions.

All of ProjectCo’s construction-related obligations have been passed down to a design-build joint venture consisting of Pomerleau Inc. and Verreault Ltd. (the DBJV). As of the latest technical advisor (Mott MacDonald) report dated May 2013, the overall progress of the project against the construction schedule stood at 97% versus a planned 98% completion target. The one-percentage point variance was caused by a defaulting subcontractor in spring 2013, which was later replaced, and some delays on final finishing work. The overall delay has since increased as a result of a province-wide construction strike between June 17 and July 2, 2013, in which nine direct working days were lost. However, the target substantial completion date remains planned for September 30, 2013, and the Hospital is expected to provide compensation for direct costs and acceleration measures as provided for under the project agreement. The DBJV had substantially recovered previous delays including those related to a province-wide strike in October 2011, for which acceleration measures were compensated by the Authority.

The completion of the 15-storey research and training facility, the six-storey administrative building and the bridge connecting the second floors of the two buildings in 2013, will mark the beginning of the 30-year operating phase, during which Honeywell Limited will perform all facilities management services, including lifecycle, on behalf of ProjectCo. Financial projections for the service phase remain unchanged, with projected debt-to-cash flow available for debt servicing (CFADS) of 8.8 times post-substantial completion and a debt service coverage ratio (DSCR) of 1.37 times over the term of the service phase.

The projected DSCR is somewhat higher than most other Canadian “A”-range bond-financed PPPs in recent years, and debt-to-CFADS is also better than recent PPPs, and although it is high relative to corporate credits, it will slowly decline with the amortization of the bonds. While the financial metrics strongly support the rating, resilience to adverse shocks such as the replacement of the DBJV or the Service Provider at a significant premium will be limited.

Notes:
All figures are in Canadian unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

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