DBRS Morningstar Confirms Integrated Team Solutions SCOC Partnership at A (low), Stable Trends

DBRS Limited (DBRS Morningstar) confirmed the Integrated Team Solutions SCOC Partnership’s (ProjectCo) Issuer Rating at A (low) with a Stable trend. DBRS Morningstar also confirmed ProjectCo’s Senior Long Term Bonds at A (low) with a Stable trend. ProjectCo is a special-purpose vehicle created to design, build, finance, and maintain the Phase One Civic Operations Centre (the Project) under a 27-year project agreement (PA) with the City of Saskatoon.

The rating is underpinned by the generally satisfactory performance and the creditworthiness of the contractors, as well as suitable security packages. ProjectCo dropped down, on a back-to-back basis, all the design, construction, and commissioning obligations under the PA to EllisDon Design Build Inc. (the Construction Contractor) through a fixed-price, date-certain Construction Contract and all service risks and responsibilities to ENGIE Services Inc. (ENGIE Services or the Service Provider; formerly Cofely Services Inc.) over the entire service phase through a fixed-price Service Contract. The Service Provider’s performance is supported by a parent company guarantee from ENGIE Energy Services SA (formerly GDF Suez Energy Services SA), which is considered to be an investment-grade entity.

The Project reached Substantial Completion on December 31, 2016, with the Final Completion expected to be achieved in early 2020. For the nine months ending September 2019, a total of $8,626 in deductions have been recorded, well below any default thresholds under the PA or the Service Contract. DBRS Morningstar also notes that the deductions have been trending down since the beginning of operations and are fully passed down to ENGIE Services. As per the 2018 Energy Analysis Report, electricity consumption was 23.2% lower than the targeted values and gas consumption was 139.6% higher than the targeted values. The Service Provider is currently considering options to improve the efficiency of gas consumption. Overall, this resulted in $52,898 net energy consumption pain share in 2018, which has been passed down to the Service Provider. ProjectCo reported an occurrence of administrative error in the compliance certificates during 2019.

The debt-service coverage ratio (DSCR) for the 12 months ending September 2019 was reported at 1.14 times (x). The forecast minimum DSCR of 1.15x and equity lock-up DSCR of 1.12x are lower than typically seen for availability-based public-private partnership projects in the “A” range; however, the operating and maintenance resilience of 53.3% and lifecycle resilience of 46.9% are supportive of the rating and reflective of a fairly simple suite of services to be provided.

Negative rating pressure could result if there is material deterioration of the operating and financial performance of the Project. Given the fixed nature of the availability-based cost and revenue structure, DBRS Morningstar believes that a positive rating action is 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 [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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