DBRS Confirms TransLink at AA, Stable Trend

DBRS Limited (DBRS) has today confirmed the Issuer Rating and Senior Unsecured Debt rating of the South Coast British Columbia Transportation Authority (TransLink or the Authority) at AA, and the Commercial Paper (CP) rating at R-1 (middle), all with Stable trends. The ratings and Stable trends are supported by the Authority’s taxing power over a broad and relatively affluent tax base, robust financial planning framework, diverse revenue sources and reasonably strong operating performance. However, large capital needs that are expected to drive debt moderately higher over the medium term, combined with general risks to transit system operations constrain the ratings, while a review of TransLink’s governance structure following the public rejection of a new regional sales tax to fund capital investment adds an element of uncertainty to the outlook.

TransLink’s ridership was mostly stable in 2014, growing by just 0.3% year over year, well below budget expectations. As a result of weak ridership growth, operating performance deteriorated slightly, but remained well above the five-year average with the Authority reporting a DBRS-adjusted operating surplus of $20.4 million or 1.4% of revenues, before non-recurring items. Mid-year results for 2015 point to a projected year-end surplus of $32.7 million, significant stronger than the budget forecast of $2.0 million, attributable to timing delays on contributions to municipalities for their work on the Major Road Network and modest revenue variances. The phased roll-out of the Compass Card system through the end of 2015 adds some operational risk and financial uncertainty to the medium-term outlook; however, indications are that the revised implementation schedule is on track and that risks are manageable.

Following the defeat of a proposal for a new 0.5% regional sales tax to fund capital projects in the Mayors’ Council Transportation and Transit Plan (Mayor’s Vision), a governance review has commenced to examine potential changes to the Authority’s current governance structure to address public accountability concerns, led by the provincial Minister responsible for TransLink and a new Metro Vancouver task force. Despite near-term uncertainty, DBRS does not anticipate significant changes to the governance framework or that the outcome of the review will result in a material negative impact on the credit profile or TransLink’s ability to meet debt servicing obligations. Investments outlined in the Mayors’ Vision have been put on hold, with capital projects limited to those in the approved 2014 Base Plan. While this provides for near-term stability, new funding sources for long-term capital expansion are unclear. DBRS notes that borrowing requirements in approved capital plans are notably lower than entailed in the Mayors’ Vision, with revisions to existing plans further reducing the expected trajectory and peak in DBRS-adjusted net debt to level well within current rating thresholds.

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 Canadian Municipal Governments (June 2015) and DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers (April 2015), which can be found on our website under Methodologies.

The full report providing additional analytical detail is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.