DBRS Assigns Provisional Rating of AAA to Guaranteed Senior Bonds of Muskrat Falls/Labrador Transmission Assets Funding Trust and Labrador-Island Link Funding Trust, Stable Trend

DBRS has today assigned a provisional rating of AAA with a Stable trend to the Guaranteed Senior Bonds (the Bonds) to be issued by both Muskrat Falls/Labrador Transmission Assets Funding Trust and Labrador-Island Link Funding Trust (the Issuers), the special-purpose financing trusts established under the laws of Newfoundland and Labrador to finance specific parts of the Lower Churchill Project (the Project). The Project is undertaken by Nalcor Energy, a wholly owned crown corporation of the Province of Newfoundland and Labrador (the Province; rated “A” with a Stable trend). The rating reflects the unconditional and irrevocable federal loan guarantee (FLG or the Guarantee) provided by the Government of Canada (Canada; rated AAA with a Stable trend) on the Bonds and pledge bonds issued under the trust indenture.

The Issuers are single-purpose financing trusts whose sole business is to issue the Bonds and on-lend proceeds to the Project through back-to-back loans, and to service outstanding Bonds with the cash flow from the loans to the Project. The total borrowing amount includes funds necessary to service the Bonds during construction up to the start of commercial operation, which is expected by the end of 2017.

DBRS has reviewed the constituting documents of the Issuers and the Guarantee Agreement between Canada and the indenture trustee and notes that the guarantee meets all of DBRS’s requirements, allowing for the flow-through of Canada’s credit profile to the Bonds. In particular, the guarantee is an irrevocable, unconditional, absolute and continuing obligation. There is no requirement to exhaust recourse against the Issuers before being entitled to payment from Canada, all defences are waived by Canada and subrogation rights are postponed as long as guaranteed obligations are outstanding and no amendment of the guarantee is permitted except by agreement with the Trustee. Furthermore, release of the guarantor is only permitted once all obligations are repaid in full.

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 methodology is DBRS Criteria: Guarantees and Other Forms of Explicit Support, which can be found on our website under Methodologies.