DBRS Morningstar Confirms TransEd Partners General Partnership at BBB (high); Trends Remain Negative

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and the rating on the Series A $394.5 million Senior Long-Term Amortizing Bonds of TransEd Partners General Partnership (ProjectCo) at BBB (high). The trends remain Negative. ProjectCo is the special-purpose entity created to design, build, finance, maintain, and perform the lifecycle obligations of the Valley Line light-rail transit Stage 1 project (the Project) under a 34.8-year project agreement with the City of Edmonton (the City).

DBRS Morningstar downgraded the ratings on December 14, 2018, as a result of a material delay in the construction of the Project that was primarily caused by an obstruction in the north side of the North Saskatchewan River Valley. The Design-Build Contractors (the DB Contractors; comprising affiliates of EllisDon Inc., Bombardier Inc., and Bechtel Corp.) submitted a revised construction schedule to the City in April 2019, which included reoptimizing the construction activities (i.e., work through the winter season where possible) and the use of new concrete mix design for the bridge construction to reduce the delay. DBRS Morningstar notes that even though the revised construction schedule shows a modest improvement, it remains compressed. Nonetheless, the Project will not meet the target service commencement date of December 15, 2020. The lenders’ technical advisor (LTA) believes service commencement will be achieved prior to the senior creditor’s longstop date of October 2021.

The Project made considerable progress on the bridge construction in 2019. According to ProjectCo, the construction challenges that the Project encountered in the last several years have been rectified and the bridge is expected to complete in late 2020. DBRS Morningstar understands that the on-time completion of the bridge in accordance with the revised construction schedule is critical to the Project because any further delay could potentially affect the service commencement date in the absence of effective mitigating factors. However, at this time, ProjectCo does not foresee any challenges in meeting the construction milestone date.

The Project did not achieve occupancy permit on the Operations & Maintenance Facility (OMF) as planned. However, the delay has had a limited impact on the delivery of the light rail vehicles (LRVs; there are currently nine LRVs stored at the OMF), and the installation of the systems is continuing. ProjectCo anticipates that the Project will receive the occupancy permit in late 2020.

DBRS Morningstar understands that ProjectCo will be submitting an updated revised construction schedule to the City in March 2020. The updated revised construction schedule will focus on the critical interfaces between the completion of the remaining civil works and the system installation activities. DBRS Morningstar will review the updated revised construction schedule when it becomes available.

The Negative trends reflect DBRS Morningstar’s view that the ratings could be further depressed given that the Project’s ability to mitigate any further risk of delay for any unforeseen construction challenges that it may encounter for the remaining construction activities has reduced considerably, resulting in greater risk of project termination. A stabilization of the ratings could result if the Project is able to achieve service commencement with an acceptable and favourable negotiation of the ongoing claims related to the previous construction issues.

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.

DBRS Morningstar will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at [email protected].

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

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