DBRS Morningstar Confirms Ratings on NorthwestConnect General Partnership at BBB (high), Stable

DBRS Limited (DBRS Morningstar) confirmed NorthwestConnect General Partnership’s (ProjectCo) Issuer Rating and Senior Amortizing Bonds – Series 1 rating at BBB (high) with Stable trends. ProjectCo is the special-purpose entity created to design, build, finance, operate and maintain Northwest Anthony Henday Drive (the Project or the Highway) under a 33.25-year agreement with the Province of Alberta (the Province; rated AA with a Negative trend by DBRS Morningstar).

The Project is in its eighth year of operations and achieved Traffic Availability on November 1, 2011, with all remaining deficiencies completed by October 2016. The road has generally performed well with no material deductions or interruptions to Traffic Availability. While deductions amounted to approximately $117,000 in 2018, mainly caused by the delayed completion pavement repairs which have since been completed, the Project has not incurred any deductions in the first nine months of 2019.

ProjectCo has completed its review of lifecycle costs, which aims to better align budget spending with the actual condition of the asset. ProjectCo appointed Ove Arup & Partners Ltd. to update the lifecycle plan and budget. The revised estimate includes adjustments to account for availability of greater design information than at financial close; transfer of certain sections of the Highway from ProjectCo to the cities through change orders; and delay in achieving final construction completion. Granherne, Inc., the Lender’s Technical Advisor, has assessed the revised lifecycle plan and overall expenditures as reasonable, including the revised costs for pavement, bridges, curbs, walkways and roadside equipment. Overall, the rehabilitation costs are approximately 23% lower in real terms. The minimum operating and maintenance and lifecycle resiliencies are now at 19% and 20%, respectively, which is considered appropriate for the rating category.

Bridge inspections were conducted in May 2019 and ProjectCo expects to complete the identified deficiencies by Q2 2020 as part of planned regular maintenance without requiring any additional expenditure. The next bridge and pavement inspections are scheduled for 2021 and 2020, respectively. The relationship between ProjectCo and the Province remains collaborative. During the last year, change orders have been executed with the Province, although these have minimal impact on the operating or lifecycle expenses. For the 12 months ending April 30, 2019, the debt service coverage ratio was 1.18 times (x), slightly higher than the minimum of 1.14x over the life of the Project. While DBRS Morningstar does not expect positive rating action over the near term, erosion of credit metrics or material deterioration in the credit profile of the swap counterparties could result in negative ratings pressure.

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 [email protected].

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar 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 [email protected].

For more information on this credit or on this industry, visit www.dbrs.com or contact us at [email protected].

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