DBRS Confirms CSS (FSCC) Partnership at A (low), Stable

DBRS Limited (DBRS) confirmed CSS (FSCC) Partnership’s (ProjectCo) Issuer Rating, initially assigned on November 15, 2018, as well as the rating on the $190.3 million Senior Secured Bonds at A (low) with Stable trends. ProjectCo is the special-purpose entity (SPE) created to design, build, finance and maintain a new approximately 665,000 square foot Forensics Services and Coroner’s Complex (the Project) under a 32.5-year public-private partnership with Ontario Infrastructure and Lands Corporation (OILC; formerly Infrastructure Ontario).

The Project has been performing well with no major operating concerns. The achievement of Substantial Completion on February 15, 2013, marked the commencement of the 30-year service phase, entailing routine maintenance of the facility and its electro-mechanical equipment as well as management of energy consumption and lifecycle maintenance to return the facility to OILC in a state of good repair upon expiry of the Project Agreement. Final completion was achieved on May 26, 2016.

The Service Provider is 10647802 Canada Limited, operating as Dexterra Integrated Facilities Management (Dexterra), wholly owned by Fairfax Financial Holdings Limited (Fairfax or the Service Guarantor; rated BBB (high) with a Stable trend by DBRS), through its subsidiary, 9477179 Canada Inc. Dexterra became the Service Provider after acquiring the interests of Carillion Services (FSCC) Inc. in the Service Contract on March 12, 2018, with Fairfax guaranteeing its performance obligations. This change became necessary when Carillion plc, in its role as the original Service Guarantor, went into compulsory liquidation. The operational transition has gone smoothly as employees at the Service Provider remained with the Project.

Availability payments have been steady with only nominal deductions and low failure points. During 2018, failure points and service deductions amounted to 3,508 and $2,780, respectively. DBRS does not expect any significant changes in facility operations for the upcoming year and believes that operations will continue in a good state.

ProjectCo indicated that the Service Provider and OILC maintain a good working relationship. In the past year, the Project’s debt service coverage ratio (DSCR) was 1.28 times (x), slightly above the expected minimum/average DSCR of 1.25x, as a result of SPE cost savings. DBRS notes that, while not expected, a prolonged period of operational difficulties which lead to substantial failure points, the need to replace the Service Provider or Service Guarantor or the Service Guarantor’s rating falling below investment grade could place negative pressure on the ratings. Given the fixed nature of the availability payment stream and operating costs, positive rating action is considered 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.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada