DBRS Confirms Ratings of The Bow First Mortgage Bonds at A (sf) with Stable Trends

DBRS Limited (DBRS) confirmed the ratings of the Series A, Series B and Series C First Mortgage Bonds (collectively, the Bonds) secured by The Bow (the Property) at A (sf) with Stable trends. The Series A and C bonds were structured with interest-only payments, while the Series B bonds were structured with principal and interest payment subject to an amortization schedule of 30 years. The Bonds were issued by Bow Centre Street Limited Partnership and have a current outstanding balance of $250.0 million, $224.9 million and $300.0 million, respectively, which will mature in June 2021, June 2022, and June 2023, respectively. Recourse is limited to the Property only.

The current rating is supported by the anticipated stable rental income from the long-term credit tenant (LTCT) of Encana Corporation (rated BBB (low) with Stable trends by DBRS), which leased the entire Property until May 2038, however, 50% of the office space is subleased to Cenovus Energy Inc. (rated BBB with Negative trends by DBRS). Although the current average in-place office net rents of $43.18 per square foot (psf) at the Property is significantly higher than the average market rent of $23.07 psf for downtown Calgary Class AA office properties reported by CBRE. DBRS accepted the in-place rents given the credit quality of the LTCT, however, it should be noted that any deterioration of the credit quality of Encana Corporation will have a negative impact on the sustainability of the rental income and consequential ratings of the Bonds. According to CBRE’s MarketView Q2 2017 report, the overall vacancy of Class AA office properties in downtown Calgary’s central core submarket rose to 23.4% from 16.2% in the previous quarter primarily as a result of the new supply of 1.4 million square feet at Brookfield Place Calgary’s East Tower. The Property is a high quality office building in downtown Calgary and benefits from strong sponsorship from H&R Real Estate Investment Trust (rated BBB (high) with a Stable trend by DBRS). Based on DBRS net cash flow and implied cap rate, the Bonds represent a current total loan-to-value ratio of 66.0% and Exit Debt Yield of 12.1% as at June 2021, when the Series A bonds are due.

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 North American Single-Asset/Single-Borrower Methodology, which can be found on dbrs.com under Methodologies.

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