DBRS Confirms Maritime Link Financing Trust’s 3.50% Bonds, Series A at AAA with a Stable Trend

DBRS Limited (DBRS) confirmed its AAA rating with a Stable trend on the 3.50% Bonds, Series A of $1.3 billion due December 1, 2052 (the Bonds), issued by Maritime Link Financing Trust (the Issuer or ML Financing Trust), a special-purpose funding trust established to facilitate the financing of the Maritime Link Transmission Project (the Project). The Bonds will fully amortize by the maturity date. The rating is predicated on the unconditional and irrevocable federal loan guarantee (the Guarantee) of the Bonds provided by the Government of Canada (Canada or the Guarantor). The rating action follows DBRS’s October 13, 2017, confirmation of Canada’s sovereign rating at AAA with a Stable trend.

DBRS notes that the Guarantee met its criteria for a flow-through of Canada’s sovereign rating to the Bonds. The Guarantee constitutes the absolute, irrevocable, unconditional and continuing obligation of Canada. There is no requirement to exhaust recourse against the Issuer before (1) bondholders are entitled to the payment from Canada; (2) all defences are waived by the government, and subrogation rights are postponed as long as the guaranteed obligations are still outstanding; and (3) no amendment of the Guarantee is permitted, except by agreement with the Indenture Trustee. Furthermore, release of the Guarantor is permitted only when all of its obligations are fully repaid. DBRS expects that the Bonds’ rating will continue to move in tandem with Canada’s sovereign rating, irrespective of the Project’s performance. Any upgrade or downgrade is expected to follow a similar rating action on Canada.

The Project is a 500-megawatt electric transmission line connecting Nova Scotia to Newfoundland and Labrador across the Cabot Strait. ML Financing Trust’s sole business is to issue the Bonds and on-lend the proceeds to NSP Maritime Link Incorporated (NSPML), the project company responsible for construction and operations. The Issuer sized the Bonds to cover interest payment during construction. After in-service date, debt service will depend on principal and interest received on the back-to-back loan to NSPML, which in turn collects revenue from Nova Scotia’s ratepayers. The Project continues to track the original budget of $1.577 billion and the estimated in-service date in early 2018. However, the Project is not expected to transmit the Nova Scotia Block of energy for the next two years as a result of the construction delay of the associated Muskrat Falls Project. Nonetheless, the Nova Scotia Utility and Review Board approved an interim cost assessment for the Project in September 2017. The approved revenue amount will be more than sufficient to cover the Project’s debt payment obligations for the interim periods of 2018 and 2019.

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

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 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 under Related Documents or by contacting us at info@dbrs.com.

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

DBRS will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrs.com.

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