DBRS Assigns Provisional Ratings of AAA with Stable Trends to the CAD 2.9 Billion Bonds to Be Issued by Muskrat Falls/Labrador Transmission Assets Funding Trust and Labrador-Island Link Funding Trust

DBRS Limited (DBRS) has today assigned provisional ratings of AAA with Stable trends to (1) 64 series of bonds of CAD 1,850 million in aggregate to be issued by Muskrat Falls/Labrador Transmission Assets Funding Trust (Muskrat Falls) and (2) 74 series of bonds of CAD 1,050 million in aggregate (together with the bonds to be issued by Muskrat Falls, the 2017 Guaranteed Senior Bonds) to be issued by Labrador-Island Link Funding Trust (Labrador-Island; together with Muskrat Falls, the Funding Trusts). The maturities of the 2017 Guaranteed Senior Bonds are staggered with final due dates of June 1, 2052, for the Muskrat Falls bonds and June 1, 2057, for the Labrador-Island bonds. The Funding Trusts were established to facilitate the financing of the Muskrat Falls Project (the Project), an 824-megawatt hydroelectric power generating facility and the associated transmission lines currently being developed in Newfoundland and Labrador.

All series of bonds will be unconditionally and irrevocably guaranteed by the Government of Canada (Canada; rated AAA, Stable by DBRS) under two new federal loan guarantee agreements executed on May 16, 2017. DBRS notes that the guarantee meets all of its requirements for a flow-through of Canada’s sovereign rating to the bonds. In particular, the guarantee is an irrevocable, unconditional, absolute and continuing obligation. There is no requirement to exhaust recourse against the Funding Trusts before being entitled to payment from Canada, all defences are waived by Canada and subrogation rights are postponed as long as guaranteed obligations are outstanding and no amendment of the guarantee is permitted except by agreement with the trustee. Furthermore, release of the guarantor is only permitted once all obligations are repaid in full. The ratings of the bonds will move in tandem with Canada’s sovereign rating, irrespective of the Project’s actual performance or underlying risk. DBRS expects to finalize the ratings on the settlement date of the bond issuances.

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 methodologies are Rating Project Finance and DBRS Criteria: Guarantees and Other Forms of Support, which can be found on dbrs.com under Methodologies.

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.