DBRS Confirms Integrated Team Solutions SCOC Partnership at A (low), Stable Trend

DBRS Limited (DBRS) confirmed the Issuer rating of Integrated Team Solutions SCOC Partnership (ProjectCo) at A (low) with a Stable trend. This rating was assigned on November 15, 2018. DBRS also confirmed ProjectCo’s Senior Long Term Bonds at A (low) with a Stable trend. ProjectCo is a special-purpose vehicle created to design, build, finance and maintain the Phase One Civic Operations Centre (the Project) under a 27-year project agreement (PA) with the City of Saskatoon (the City).

The rating is underpinned by the generally satisfactory performance and the creditworthiness of the contractors, as well as suitable security packages. ProjectCo dropped down, on a back-to-back basis, all the design, construction and commissioning obligations under the PA to EllisDon Design Build Inc. through a fixed-price date-certain Construction Contract and all service risks and responsibilities to ENGIE Services Inc. (ENGIE Services or the Service Provider) over the entire service phase through a fixed-price Service Contract. The Service Provider’s performance is supported by a parent company guarantee from ENGIE Energy Services SA, which is considered to be an investment-grade entity.

The project reached Substantial Completion on December 31, 2016, with the Final Completion expected to be achieved in early 2019. For the nine months ending September 2018, a total of $9,882 in deductions have been recorded, well below any default thresholds under the PA or the Service Contract. DBRS also notes that the deductions have been trending down since the beginning of operations and has been fully passed down to ENGIE Services. For year-to-date October 2018, the consumption of electricity was comparable to the last year’s usage and generally in line with the targets. However, the gas consumption in 2018 was found to be around 47% higher than the targeted values, partly owing to underreporting by SaskEnergy during 2017. This resulted in approximately $60,000 energy consumption pain share in 2018, which has been passed down to the Service Provider. A resubmitted 2017 Energy Report is under negotiations with the City and such negotiation is expected to be finalized prior to the submission of the 2018 Energy Report, which is due by Q1 2019.

The debt service coverage ratio (DSCR) for the twelve months ending September 2018 was reported at 1.21 times (x). This is slightly higher than the expected DSCR of 1.15x, due to higher than expected reinvestment income along with lower than expected ProjectCo costs. The forecast minimum DSCR of 1.15x and equity lock-up DSCR of 1.12x are lower than typically seen for availability-based public-private partnership projects in the “A” range; however, the operating and maintenance resilience of 53.3% and lifecycle resilience of 46.9% are supportive of the rating and reflective of a fairly simple suite of services to be provided. Negative rating pressure could result if there is material deterioration of the operating and financial performance of the Project. Given the fixed nature of the availability-based cost and revenue structure, DBRS believes that a positive rating action is unlikely.

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 & Criteria.

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.

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.