DBRS Confirms Teranet Holdings LP at BBB with Stable Trends

DBRS Limited (DBRS) confirmed the Issuer Rating and the Senior Secured Debt of Teranet Holdings LP (Teranet or the Company) at BBB with Stable trends. The ratings continue to be supported by the Company’s position as an exclusive service provider, healthy margins and low capital needs, but is tempered by the recent dampening in transaction volumes and high household debt.

The Province of Ontario’s (Ontario; rated AA (low) with a Stable trend by DBRS) registration volumes were 13.7% lower in 2018 compared with those of 2017, following the announcement of Ontario’s Fair Housing Plan on April 20, 2017, and the introduction of the new Office of the Superintendent of Financial Institutions (OSFI) mortgage regulations that became effective January 1, 2018. Gross revenue decreased by 7.6% from the prior year. Operations in the Province of Manitoba (Manitoba; rated A (high) with a Stable trend by DBRS) represented approximately 10.1% of total revenue in 2018.

The effects of Ontario’s Fair Housing Plan and the introduction of the new OSFI mortgage regulations continued to be felt into H1 2019, as registration volumes declined by 1.3% over the same period in the prior year. Total revenue in H1 2019 increased slightly by 0.8% while total expenses, excluding depreciation, declined by 9.7% as a result of continued cost management, resulting in an increase in EBITDA of 6.4% compared with the same period last year. The stabilization of the real estate market in the Greater Toronto Area (GTA) as a result of policy changes designed to balance housing demand-supply dynamics, along with the widely held expectation that interest rates will remain relatively unchanged for the remainder of the year, helped to maintain the DSCR at 1.81 times (x) for H1 2019.

DBRS expects a gradual real estate market recovery in the medium and long term as housing market conditions continue to stabilize. The more stringent stress tests and regulations from 2017 and 2018 will provide some resilience against future volatility in homebuying activity, engendering stable credit metrics for Teranet going forward. DBRS expects the gradual recovery for the remainder of the year as credit metrics continue to be supported by positive trends in local labour markets and population growth, while borrowing costs remain low. DBRS also expects that policymakers may continue to tighten mortgage rules if potential signs of an overheating real estate market become evident. A negative rating action could result from an economic downturn or from a protracted material softening of the real estate market, leading to markedly weaker financial metrics with DSCR declining to a forecast average of roughly 1.45x. Upward pressure on the rating is not expected at this time, but could result from a prolonged period of volume growth and stronger credit metrics.

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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