DBRS Confirms TransEd Partners General Partnership at BBB (high); Trends Remain Negative

DBRS Limited (DBRS) confirmed the Issuer Rating and the rating on the Series A $394.5 million Senior Long-Term Amortizing Bonds of TransEd Partners General Partnership (ProjectCo) at BBB (high). The trends remain Negative. ProjectCo is the special-purpose entity created to design, build, finance, maintain and perform the lifecycle obligations of the Valley Line light-rail transit Stage 1 project (the Project) under a 34.8-year project agreement (PA) with the City of Edmonton (the City).

DBRS downgraded the ratings on December 14, 2018, as a result of a material delay in the construction of the Project that was primarily caused by an obstruction in the north side of the North Saskatchewan River Valley. DBRS understands that ProjectCo, the Design-Build Contractors (the DB Contractors; comprising affiliates of EllisDon Inc., Bombardier Inc. and Bechtel Corp.) and the City are working collaboratively toward alternative construction solutions to reduce the delay. DBRS notes that any proposed alternative construction solutions would require the City’s approval.

According to ProjectCo, construction of the Project is progressing in line with its schedule submitted on August 27, 2018. The City has yet to approve the schedule and is still negotiating revisions with the DB Contractors. Moreover, the production of the light rail vehicles (LRVs) remains on schedule, and the construction delay has not affected the delivery of the LRVs. The last LRV will be ready to be delivered by the end of June 2020.

The Project has also encountered more contaminated soil than expected at financial close. The DB Contractors have indicated that they are working closely with the City and ProjectCo on this issue. To date, there have been no financial implications to ProjectCo.

Because of the compressed construction schedule to meet various contractual deadlines and the ongoing uncertainty with respect to the timing of a resolution and the associated terms and conditions, the construction risk profile of the Project is commensurate with a BBB (high) rating, which is one notch lower than the operating phase rating.

The Negative trends reflect DBRS’s view that the ratings could be further depressed given the material possibility of protracted disputes regarding construction challenges that could 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 and favourable 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 & 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.

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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