DBRS Confirms Plenary Properties LTAP LP at “A,” Stable Trend

DBRS Limited (DBRS) has today confirmed the rating of “A” with a Stable trend on the Long-Term Senior Bonds (the Bonds) of Plenary Properties LTAP LP (ProjectCo), the special-purpose entity created to design, build, finance, maintain and provide information technology (IT) and lifecycle services to the Communications Security Establishment Canada (CSEC) Long-Term Accommodation Project (LTAP). The project is governed by a 33.5-year Project Agreement (PA) signed between ProjectCo and the Government of Canada (rated AAA, Stable, by DBRS) as represented by Defence Construction Canada (1951) Ltd. The new facility substantially consolidated services previously furnished at several separate locations by CSEC, Canada’s foreign intelligence and national cryptologic agency. The project reached substantial completion on July 31, 2014, and final completion on April 25, 2016. The design-build contractor was PCL Constructors Canada Inc. (the DB Contractor), a subsidiary of PCL Construction Group Inc. Following service commencement on August 1, 2014, the outstanding Short-Term Senior Bonds in the amount of $167.5 million were repaid in full on the expected redemption date of August 18, 2014, from the proceeds of the service commencement payment. With construction complete, the construction security has been returned. Additionally, the project has achieved LEED Gold certification.

The project is in the 32nd month of the 30-year service phase. Honeywell Limited, with parent guarantee from Honeywell International Inc., performs all facilities management (FM) services as well as lifecycle services on behalf of ProjectCo to return the facility to a state of good repair upon expiry of the PA. ProjectCo’s obligations related to IT support, maintenance and lifecycle services are being passed down on a back-to-back basis to ESIT Canada Enterprise Services Co. (name changed from Hewlett-Packard (Canada) Co.), the Canadian subsidiary of Hewlett Packard Enterprise Company (HPE).

During 2016, deductions amounted to approximately $2,000 for IT services and $15,000 for other FM services. ProjectCo has indicated that the deduction levels are minor in nature and do not breach PA thresholds. ProjectCo continues to monitor the progress in the operations period with little expectation of major service issues or problems. The actual and projected financial metrics for the service phase remain consistent with the financial model and adequate for the rating.

In May 2016, HPE announced a spin-off and merger of its enterprise services business with Computer Science Corporation. The spin-off and merger is scheduled to take effect in April 2017. DBRS notes that, post-merger, the parent company guarantee currently provided by HPE with a value of approximately $35 million is expected to be provided by Everett SpinCo, Inc., to be renamed DXC Technology Company. DBRS considers the proposed guarantee provider to be investment grade and, as such, in DBRS’s view, the proposed merger does not alter the credit quality of the Bonds.

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 principal methodology is Rating Public-Private Partnerships (March 2017), which can be found on dbrs.com 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.