Press Release

DBRS Finalizes Its Provisional Rating of A (low) on Plenary Justice Okanagan Limited Partnership

Infrastructure
March 21, 2014

DBRS has today finalized its provisional rating of A (low) with a Stable trend on the proposed $114.5 million, Series A Senior Notes of Plenary Justice Okanagan LP (ProjectCo), the special-purpose entity created to design, build, finance and maintain the Okanagan Correctional Centre (OCC). The project is governed by a 32.6-year Project Agreement signed between ProjectCo and the Province of British Columbia (rated AA (high), Stable trend). The sizable construction enhancement package, combined with the credit profile of the Design-Build Contractor (the DB Contractor) and the relatively low complexity of work, results in a construction phase considered strong for the rating category. The project includes extensive requirements related to security equipment and provisions for higher levels of wear and tear, but the low payment risk related to ProjectCo revenues, the straightforward nature of overall service obligations and the sound operating resilience are supportive of the rating during the service phase.

The project involves the construction of a three-storey high-security correctional facility located near Penticton, B.C. The construction phase extends for 31 months starting in March 2014 followed by a 30-year service phase commencing at the Service Commencement Date targeted for September 30, 2016. ProjectCo has passed down on a back-to-back basis all of its construction responsibilities to PCL Constructors Westcoast Inc. (the DB Contractor), which has agreed to complete the work on a fixed-price and date-certain basis. A subsidiary of Canada’s largest general contractor, the DB Contractor plans to subcontract about 85% of the development and will secure its performance with a 50% parent guarantee, a 50% performance bond and a 5% letter of credit. DBRS considers the construction as being of low-to-moderate complexity while noting the more comprehensive requirements related to security systems customary for a facility of this nature. The Lenders’ Technical Advisor has not identified any major issues that would potentially pose undue risk.

Upon completion of construction, Honeywell Limited (Canada) (the Service Provider) will provide facility management as well as lifecycle maintenance and utilities management services over the 30-year service phase of the project. The Service Provider, a subsidiary of one of the largest facilities management providers globally, will perform the majority of the facilities maintenance and lifecycle work, while certain ancillary facility maintenance functions like waste management and ground maintenance will be subcontracted to other specialized parties. ProjectCo only retains responsibility for general management, performance monitoring and the maintenance of certain insurances. Overall, the service specifications are viewed as standard for a correctional centre, with payment deductions generally expected to be modest over the life of the project.

Typical of public-private partnerships, leverage will be relatively high with a gearing ratio of 90.5:9.5 at financial close. This is also reflected in the debt-to-cash flow available for debt servicing ratio of 13.1 times projected in the first year of operation and the debt service coverage ratio of 1.21 times foreseen over the project’s term. Nonetheless, the results of the breakeven analysis for facility management and lifecycle costs are viewed as adequate and are supported by a Service Provider of high quality.

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.

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

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

Ratings

Plenary Justice Okanagan LP
  • Date Issued:Mar 21, 2014
  • Rating Action:Provis.-Final
  • Ratings:A (low)
  • Trend:Stb
  • Rating Recovery:
  • Issued:CA
  • US = Lead Analyst based in USA
  • CA = Lead Analyst based in Canada
  • EU = Lead Analyst based in EU
  • UK = Lead Analyst based in UK
  • E = EU endorsed
  • U = UK endorsed
  • Unsolicited Participating With Access
  • Unsolicited Participating Without Access
  • Unsolicited Non-participating

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