DBRS Confirms TransLink at AA, R-1 (middle); Stable Trends

DBRS Limited (DBRS) confirmed the Issuer Rating and Senior Unsecured Debt rating of South Coast British Columbia Transportation Authority (TransLink or the Authority) at AA and its Commercial Paper rating at R-1 (middle). All trends are Stable. The ratings are supported by TransLink’s taxing authority in the Metro Vancouver Regional District (Metro Vancouver), sound financial management and strong regional economic growth dynamics that are driving increased ridership. TransLink’s operating performance remains positive and its robust long-term planning provides DBRS with confidence that the credit profile will remain sound amid a major expansion of transit service and infrastructure.

TransLink reported a DBRS-adjusted surplus of $97.3 million in 2017, down from a DBRS-adjusted surplus of $246.2 million the prior year. For 2018, TransLink projects that it will record a final surplus of $176.5 million compared to $253.1 million budgeted, with most of the projected variance attributable to lower senior government transfers and modestly weaker taxation revenues. Expenses are expected to be slightly below budget. Healthy ridership trends continue, with passenger boardings up 5.9% year to date (YTD) through June 2018.

Following the removal of bridge tolls by the Province of British Columbia (the Province; rated AA (high) with a Stable trend by DBRS) on September 1, 2017, DBRS re-classified the Golden Ears Bridge contractor liability from self-supporting debt to part of TransLink’s DBRS-adjusted net debt burden. This resulted in a significant one-time increase in debt to $3.8 billion in 2017, or $1,463 per capita and 0.46% of Metro Vancouver taxable assessment. DBRS notes that TransLink is receiving offsetting grants for the lost tolling revenue.

TransLink’s 10-Year Investment Plan (2018–27) was approved in June 2018 and provides funding for Phase Two of the 10-Year Vision for Metro Vancouver Transit and Transportation. The plan includes major capital projects such as the first phase of the Surrey Light Rail Transit project and the Millennium Line Broadway Extension, and will be funded through a new regional development cost charge, modest fare and taxation increases and significant capital contributions from senior governments. The inclusion of new major projects has caused the outlook for debt to rise above what was contemplated at the last review. Debt is now expected to peak at $5.2 billion in 2023, resulting in projected debt per capita of $1,895 and 0.50% of Metro Vancouver’s total taxable assessment. The Financial Risk Assessment metrics at the projected peak debt burden in 2023 are expected to be manageable for the current ratings.

RATING DRIVERS
The outlook for all ratings is Stable. While not anticipated, the ratings could experience downward pressure should operating performance deteriorate significantly on a sustained basis or if the debt burden evolves materially above current projections. Upward rating pressure is not likely because of the rising debt burden and the mobilization risks associated with an ambitious investment plan.

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

The principal methodologies are Rating Canadian Municipal Governments and DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers, 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.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at info@dbrs.com.