DBRS Downgrades the Ratings of TransEd Partners General Partnership to BBB (high) from A (low), Negative Trend

DBRS Limited (DBRS) downgraded the Issuer Rating and the $394.5 million Series A Bonds rating of TransEd Partners General Partnership (ProjectCo) to BBB (high) from A (low) and removed the ratings from Under Review with Negative Implications. The trend is Negative. ProjectCo is the special-purpose entity created to design, build, finance, maintain and perform lifecycle obligations of the Valley Line LRT Stage 1 project (the Project) under a 34.8-year project agreement with the City of Edmonton (the City).

The downgrade is a result of a material delay in the construction of the Project that was primarily caused by the obstruction in the north side of the North Saskatchewan River Valley. The unexpected discovery of the obstruction during the installation of the North cofferdam had a significant impact on the construction schedule. The foundation work of the bridge was significantly affected and micro piling at the north end of the river did not restart until April 2018. The unforeseen obstruction has significantly delayed bridge construction.

As a result of the construction delays, the Design-Build Contractors (the DB Contractors; comprised of affiliates of EllisDon Inc., Bombardier Inc. (rated B with a Positive trend by DBRS) and Bechtel Corp.) have submitted a revised construction schedule. The City has yet to approve the revised schedule and is still negotiating revisions with the Design-Build Joint Venture. DBRS notes that discussions between the City, ProjectCo and the DB Contractors are ongoing and that according to ProjectCo, some progress has been made in the reduction of the delay although this would require alternative construction means and methods, necessitating the City’s approval. DBRS believes the timing of a resolution and the associated terms and conditions remain uncertain. Overall, DBRS believes the construction risk profile of the Project is no longer commensurate with the A (low) rating.

The Negative trends reflect DBRS’s view that the ratings could be further depressed given that there is a material possibility of protracted disputes regarding construction challenges that could potentially lead to substantial accumulation of default points and/or pose further risk of delay, resulting in greater risk of project termination. A stabilization of the ratings could result if the Project is able to achieve service commencement with an acceptable negotiation of the ongoing disputes.

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

The principal methodology is Rating Public-Private Partnerships, 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.

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