DBRS Morningstar Confirms Capital City Link General Partnership at A (low) with a Stable Trend

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Long-Term Senior Bonds rating of Capital City Link General Partnership (ProjectCo or the Issuer) at A (low). All trends are Stable.

ProjectCo is a special-purpose entity (SPE) created to design, build, finance, operate and maintain (DBFOM) the 27-kilometre northeast leg of Anthony Henday Drive in Edmonton (the Project) under a 34.5-year DBFOM agreement with the Province of Alberta (rated AA with a Negative trend by DBRS Morningstar). The Project has been open to traffic since October 2016.

The operating and financial performance of the Project remain relatively stable. The outstanding landscaping works were scheduled to be completed in 2019. However, due to inclement weather, the Design-Build (DB) Contractors were unable to complete the works as planned. ProjectCo indicated the landscaping work will restart in 2020 when weather permits. Furthermore, the DB Contractors have made some progress in completing the list of warranty items. The value of the remaining warranty items has been reduced to about $1.08 million from about $4.0 million to $5.0 million. The letter of credits posted by the DB Contractors remain sufficient to cover the value of the remaining warranty works.

Traffic volume in 2018 on some segments of the highway remains ahead of projections. DBRS Morningstar notes that the lifecycle obligation is retained by ProjectCo, and as a result, it introduces an element of risk to the Project. Although the presence of a three-year look-forward lifecycle reserve mitigates some of the risk, persistently higher-than-expected traffic volume or faster-than-expected deterioration of the infrastructure could drive lifecycle costs up considerably (beyond the reserve amount) without any compensation coming from the Government of Alberta Ministry of Transportation (Alberta Transportation). If that were to occur, it could potentially affect the financial metrics significantly. However, DBRS Morningstar notes that the pavement and structures remain in relatively good condition and does not expect that these potential events will affect the financial metrics of the Project in the near term.

ProjectCo achieved an annual debt service coverage ratio (DSCR) of approximately 1.29 times (x) and 1.30x in December 2018 and September 2019, respectively. The forecast financial metrics remain unchanged from the time of the initial rating assignments, with a projected minimum DSCR of 1.27x over the term of the operating phase. The lifecycle (including the SPE budget because it includes specific asset management testing and intervention engineering) and operating and maintenance resiliencies of 28.6% and 41.6%, respectively, remain supportive of the ratings.

DBRS Morningstar could take a negative rating action if there is a significant increase in the projected lifecycle cost, which could potentially lead to a material deterioration of the financial metrics. A positive rating action is unlikely because of the fixed revenue stream from Alberta Transportation.

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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