DBRS Comments on CSS (FSCC) Partnership

DBRS Limited (DBRS) has today commented on CSS (FSCC) Partnership (ProjectCo), the special-purpose entity contracted by Ontario Infrastructure and Lands Corporation (OILC) to design, build, finance and maintain a new 665,000 square foot Forensics Services and Coroner’s Complex (the Project) located in Toronto under a 32.5-year public-private partnership (PPP) agreement. The commentary provides an interim update on the Project with respect to the credit profile of Carillion plc.

Carillion plc has provided a guarantee supporting Carillion Services (FSCC) Inc.’s (the Service Provider) obligations under its Service Contract with ProjectCo. Carillion plc released its H1 2017 trading update, indicating a reduction in performance against management’s expectations for 2017 due to a deterioriation in cash flows on construction contracts, combined with working capital outflows due to construction contracts being completed without being replaced by new ones. Carillion plc indicated an expected impairment provision of GBP 845 million for H1 2017, mainly related to three PPP projects in the United Kingdom, the exit from certain markets in the Middle East and the exit from the construction market in Canada. DBRS notes that the actual cash cost is expected to be lower. DBRS is in the process of reviewing the impact of the disclosures on the credit profile of Carillion plc.

The Project has otherwise been performing well with no major operating concerns. During the first five months of 2017, failure points were low, well below the warning notice thresholds. Deductions during the period were also low, except in January 2017, when the deductions were higher, attributable to elevator unavailability failures, which were fully passed down to the Service Provider. ProjectCo has indicated that the working relationship with OILC remains collaborative.

Notes:
All figures are in in Canadian dollars unless otherwise noted.

The principal methodology is Rating Public-Private Partnerships, which can be found on dbrs.com under Methodologies.

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