DBRS Finalizes Rating on Suncor Energy Centre Bonds

DBRS has today finalized its provisional rating of “A”, with a Stable trend, on the $550 million 5.188% Series 1 Senior Secured Bonds (the Bonds) secured by Suncor Energy Centre (the Complex) located in Calgary, Alberta after the closing of the Bonds offering on August 29, 2013. The Bonds are direct joint and several obligations of SEC LP (SEC) and Arci Ltd. (Arci) (collectively, the Issuers), with recourse limited to the Complex. The Issuers are structured as bankruptcy remote, single-purpose entities whose sole purpose is to own and manage the Complex. The net proceeds from the Bonds are used by the Issuers to redeem existing debt secured by the Complex with the remainder, if any, being used for general corporate purposes. The Bonds have a 20-year term from the closing date, subject to a 25-year amortization schedule, with an interest rate of 5.188% per annum, compounded semi-annually.

The rating is based on the quality and location of the Complex, a long-term lease to a high-credit-quality anchor tenant, and the strong sponsorship and property management experience of the operator, Brookfield Properties Management Corporation. The rating also considers that a significant portion of the Complex’s leases expire prior to the Bonds’ maturity date, that a high concentration of tenants are in the oil and gas sector, and there is limited cash flow growth for the Complex over the life of the Bonds.

In terms of cash flow analysis and loan sizing, DBRS has assessed the refinance debt service coverage ratio (DSCR) and refinance loan-to-value (LTV) in Year 15 (2028) of the Bonds, when DBRS believes the Bonds have the greatest refinancing risk due to the lease maturity of Suncor Energy Inc. (Suncor; accounts for 75.1% of total leasable area). In DBRS’s base case scenario, DBRS derived a refinance DSCR of 1.96 times (x) for the Complex, which assumes a 9.140% constant applied to the outstanding debt balance in Year 15 (2028) of the Bonds.

In the base case scenario, the DBRS refinance LTV is 56.0% at 2028, after applying a 10.0% capitalization rate to the DBRS base case net cash flow. The loan represents an initial loan per square foot (psf) of $318 that amortizes to $176 psf at Year 15 of the Bonds’ term (2028), which is much lower than $693 psf, the current appraisal price of the Complex. Overall, DBRS views the refinance DSCR of 1.96x and refinance LTV of 56.0% under the base case scenario to be supportive of the “A” rating category.

Notes:
All figures are in Canadian dollars 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 methodologies are Rating Real Estate Entities and CMBS Rating Methodology, which can be found on our website under Methodologies.