DBRS Upgrades Ontrea Inc. and OPB (155 Wellington) Inc. (RBC Centre) to AA, Stable

DBRS has today upgraded the $300 million 4.619% First Mortgage Bonds (the Bonds) of Ontrea Inc. (Ontrea) and OPB (155 Wellington) Inc. (collectively, the Issuers) secured by RBC Centre (the Complex) to AA from A (low), with a Stable trend.

This action removes the Bond’s rating from Under Review with Positive implications, where it was placed on October 3, 2013, following the release of DBRS’s updated version of its corporate finance methodology “Rating Entities in the Real Estate Industry,” which included a new appendix entitled “Property Financing (First Mortgage Bonds)” (see press release dated October 3, 2013).

The appendix introduced new legal and structural criteria for first mortgage bond financing, primarily focusing on whether or not the debt rating of the issuer (regardless of what legal form the issuer takes) could be linked to the debt rating of the owner of the issuer. This would occur if the issuer is not properly ring-fenced from the bankruptcy risk of its owner through a special-purpose vehicle (SPV).

DBRS notes that RBC Centre and the Bonds are not held in a SPV, but are held directly by Ontrea and OPB (155 Wellington) Inc., a wholly owned subsidiary of the Ontario Pension Board. As the Bonds are direct obligations of the Issuers, the rating upgrade reflects the probability of an event of default at the Issuers’ level, despite the fact that recourse for the Bonds is limited to the Issuers’ interest in the Complex. There is, however, full recourse with respect to certain conduct, such as fraud, material misrepresentation or misapplication by the Issuers of funds, such as insurance proceeds and rents. DBRS will release a report shortly that provides an update on the operating performance of the Complex.

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 Rating Entities in the Real Estate Industry, which can be found on our website under Methodologies.