Press Release

DBRS Takes Rating Action on SNC-Lavalin Projects

Infrastructure
December 10, 2014

DBRS Limited (DBRS) rates four PPP projects in which SNC-Lavalin Group Inc. participates as member of the design-build joint venture and/or as the service provider: 407 East Development Group; Rainbow Hospital Partnership; SNC-Lavalin Innisfree McGill Finance Inc.; and InPower BC General Partnership. As a result of the stabilization of the rating of SNC-Lavalin Group Inc. on December 5, 2014, DBRS has today taken the following rating actions:

--SNC-Lavalin Innisfree McGill Finance Inc.: Series A Senior Amortizing Bonds confirmed at BBB (high), trend changed to Positive;
-- Rainbow Hospital Partnership: Series 1 and Series 2 Senior Bonds confirmed at A (low), trend changed to Stable; and
-- 407 East Development Group: Long-Term and Short-Term Bonds confirmed at A (low) with a Negative trend.

SNC-Lavalin Innisfree McGill Finance Inc.’s Series A Senior Bonds were downgraded in October 2013 as a result of the downgrade of SNC-Lavalin Group Inc., the project’s design-build contractor, and the numerous delays in the construction schedule at that time. However, achievement of phase 2 substantial completion of the project in November 2014 and the stabilization of SNC-Lavalin Group Inc.’s investment-grade rating are supportive of the revision of the trend to Positive. DBRS expects that once the remaining variation directives and construction-related activities have been completed, and the project is operating at a steady state with minimal deductions, further positive rating action could be taken.

At the time of the rating assignment on Rainbow Hospital Partnership on August 2, 2013, the project’s progress was behind schedule, and DBRS noted that the ongoing construction delays limited the rating of the construction phase to a level one notch lower than otherwise justified by the levels of performance and financial supports. Subsequently, the downgrade and maintenance of the Negative trend on SNC-Lavalin Group Inc. on October 17, 2013, caused the trend of Rainbow Hospital Partnership to be modified to Negative. As a result of the stabilization of the rating of SNC-Lavalin Group Inc. on December 5, 2014, the trend of Rainbow Hospital Partnership’s Series 1 and Series 2 Senior Bonds has been revised to Stable. Notwithstanding the delay in achieving the originally scheduled substantial completion date of October 15, 2014, DBRS notes that a small amount of work remains to be completed prior to the revised substantial completion date of December 19, 2014.

DBRS changed the trend on the ratings of 407 East Development Group General Partnership to Negative on October 17, 2013, as a result of the downgrade and maintenance of the Negative trend on SNC-Lavalin Group Inc. Since that time, the project has encountered construction-related difficulties, and in May 2014, the rating was reaffirmed but with the expectation that DBRS would revisit the status of construction in late fall 2014. The latest remedial plan dated September 9, 2014, features a planned substantial completion date of November 18, 2015, in advance of the substantial completion date mandated by the Project Agreement of December 18, 2015. While the stabilization of SNC-Lavalin Group Inc.’s rating provides support to the construction phase rating, DBRS has maintained the Negative trend on 407 East Development Group in the expectation that construction-related delays may persist. Further deviation from the remedial plan could lead to negative rating action, although the ability of the project to successfully complete the remedial schedule could result in stabilization of the trend.

DBRS notes that there has been no change to InPower BC General Partnership’s Senior Secured Bonds, and they remain rated BBB (high) and Under Review with Negative Implications, pending the replacement of the turbine subcontractor.

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

407 East Development Group
Rainbow Hospital Partnership
SNC-Lavalin Innisfree McGill Finance Inc.
  • 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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