DBRS Morningstar Upgrades Ratings of 407 East Development Group to A (low), Stable

DBRS Limited (DBRS Morningstar) upgraded 407 East Development Group’s (ProjectCo) Issuer Rating and Long-Term Senior Bonds rating to A (low) from BBB (high). All trends are Stable. The rating upgrade is a reflection of the successful achievement of final completion and the sound operating performance demonstrated since substantial completion. The ratings continue to be supported by the availability-based revenues from the Province of Ontario (the Province; rated AA (low) with a Stable trend by DBRS Morningstar) and the pass down of all service period obligations, including lifecycle risk, to an experienced service provider.

ProjectCo is the special-purpose entity created to design, build, finance, maintain, and perform lifecycle obligations of the Highway 407 East Extension (the Project) under a 33.6-year project agreement (PA) with the Province. ProjectCo’s construction-related tasks, including latent defect warranties, have been passed down to a general partnership of subsidiaries of SNC-Lavalin Group Inc. (rated BBB (low) with a Negative trend by DBRS Morningstar) and Ferrovial Agroman S.A. After achieving substantial completion on June 9, 2016, ProjectCo received the final completion certificate on November 29, 2019, and the delay in reaching final completion has not resulted in any material negative impact on the performance of the Project. Also, the Project has not been materially affected by the Coronavirus Disease (COVID-19) and therefore no force majeure notice has been submitted to Infrastructure Ontario in light of the coronavirus.

Risks and responsibilities pertaining to routine and lifecycle maintenance during the service phase are all passed down to another general partnership that is guaranteed and indirectly owned by SNC-Lavalin Group Inc.; Cintra Infrastructures SE (formerly, Cintra Infraestructuras, S.A.); and Cintra Global SE (formerly, Cintra Global Ltd.). DBRS Morningstar noted that the scope of services required under the PA is standard and includes preventive and lifecycle maintenance of the highway and coordination of emergency services. Operational performance has been impressive with no failure points or payment deductions incurred to date. Key financial metrics, such as the minimum debt service coverage ratio and breakeven ratios, are in line with expectations at financial close. DBRS Morningstar notes that ProjectCo’s relatively limited resilience to shocks in the lifecycle budget during operation is expected to constrain the ratings to a maximum of A (low).

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodology is Rating Public-Private Partnerships (August 23, 2019), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

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.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.

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.dbrsmorningstar.com or contact us at [email protected].

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