DBRS Morningstar Assigns Rating of A (high), Stable, to British Columbia Ferry Services Inc. New Issuance

DBRS Limited (DBRS Morningstar) assigned a rating of A (high) with Stable trend to the $250 million Series 19-1 Senior Secured Bonds issuance (the Bonds) of British Columbia Ferry Services Inc. (BC Ferry or the Company). The Bonds have been issued under a master trust indenture dated May 19, 2004, and a thirteenth supplemental indenture dated October 15, 2019. The rating being assigned is based upon the rating on already outstanding series of the above-mentioned debt instrument.

The Company will use the net proceeds from the sale of the Bonds to (1) fund the Series Reserve Account in connection with the Bonds and (2) provide for capex and general corporate purposes. The Bonds have a maturity date of October 15, 2049, and are direct obligations of the Company, ranking pari passu with all other outstanding bonds of BC Ferry. Correspondingly, the A (high) rating and the Stable trend are consistent with the ratings and trends assigned to the Company’s existing Senior Secured Bonds.

In F2019, passenger volume and vehicle traffic rose by 1.2% and 1.9%, respectively. Total revenue and operating expenses increased by 3.0% and 3.9%, respectively. EBITDA increased by 0.7% in F2019 which, along with essentially unchanged debt service payments, led to an increased debt service coverage ratio (DSCR) of 2.8 times (x) as at the end of F2019, slightly better than expectations.

Total revenues continued to rise by 7.3% in Q1 F2020, mainly driven by traffic growth, increases to the ferry transportation fees and net retail sales. Vehicle traffic grew by 2.5% and passenger volume increased by 2.2%. Operating expenses also rose by 5.0% during Q1 F2020, mainly because of additional round trips, the introduction of the Northern Sea Wolf and the re-introduction of the upgraded Spirit of Vancouver Island into service. EBITDA for Q1 F2020 reached $70.7 million, an increase of 14.2% compared with the same period in F2019.

DBRS Morningstar notes that on, September 30, 2019, the BC Ferry Commissioner (the Commissioner) made the final determination regarding Performance Term 5 (PT5), including an annual price cap increase of 2.3%, which compares favourably with the former 1.9% annual cap approved for PT4. The Commissioner also outlined a target minimum DSCR of 2.5x and equity as a percentage of total capitalization of at least 17.5% at all times throughout PT5. These figures are in line with previous levels during PT4 and remain supportive of the rating.

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.

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