DBRS Confirms Blackbird Infrastructure 407 General Partnership at A (low), Stable

DBRS Limited (DBRS) confirmed Blackbird Infrastructure 407 General Partnership’s (ProjectCo) Issuer Rating (which was initially assigned on November 15, 2018), as well as the ratings on ProjectCo’s $108.0 million Senior Long-Term Amortizing Bonds (Series A Bonds) and $264.3 million Senior Short-Term Bullet Bonds (Series B Bonds) at A (low). All trends are Stable. ProjectCo is the special-purpose entity created to design, build, finance, maintain and perform lifecycle obligations of the Highway 407 Phase 2 east extension (the Project) under a 32.8-year project agreement with the Province of Ontario (the Province; rated AA (low) with a Stable trend by DBRS).

The Project is 51 months into the 4.8-year construction period, with the value of work completed at approximately 87% of the total contract price as of March 31, 2019. Construction has generally progressed well, with the Project continuing to remain marginally ahead of the draw curve. The Phase 2A substantial completion was achieved by the target date of December 31, 2017, and the Phase 2A final completion was achieved on June 12, 2018. The lender’s technical advisor (LTA) has opined that the overall substantial completion date of December 31, 2019, is achievable and that the remaining funds available are sufficient to carry out the balance of the work.

The outstanding items include work on the decks of the structures and paving the roads. The aim is to complete the latter before mid-November 2019 to avoid difficult weather conditions. ProjectCo is in discussion with the Province on resequencing the interchange availability dates to improve constructability of the Project, although these changes do not impact the substantial completion date. The design is complete, and the utility work is almost complete. There are no concerns regarding permits or approvals.

Operations and maintenance work is continuing on the completed highway segment of approximately eight kilometres, without any issues, and no deductions or failure points have been incurred. The LTA has indicated that the relationship with the Province remains good, with a level of cooperation typical of other public-private partnership projects. There are no ongoing disputes. Financial projections remain unchanged from those at financial close, with a minimum forecast historical debt service coverage ratio of 1.39 times and resiliencies of 44.8% for the operations and maintenance budget and 25.3% for the rehabilitation budget, which are supportive of the rating. While not currently envisioned, DBRS may take a negative rating action should the Project experience material delays, among other reasons. A rating upgrade 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.

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