DBRS Morningstar Downgrades TransEd Partners General Partnership Ratings to BBB, Negative Trends

DBRS Limited (DBRS Morningstar) downgraded the Issuer Rating and the rating on the Series A $394.5 million Senior Long-Term Amortizing Bonds of TransEd Partners General Partnership (ProjectCo) to BBB from BBB (high). Both trends are Negative. The ratings downgrade is a result of an additional delay in the construction schedule, which has materially reduced the time buffer before the Creditors’ Longstop Date of October 15, 2021, and the project agreement Longstop Date of December 15, 2021. The additional delay is a result of the construction challenges with respect to segment S2 (1 of 41 total segments) of the bridge and the longer-than-expected concrete curing time during the winter months.

DBRS Morningstar believes the current forecast provides very little buffer in the event of encountering any further unforeseen challenges with the remaining construction activities. In addition, DBRS Morningstar views that with only about 16 months left in the construction schedule (before the Creditors’ Longstop Date) and critical construction activities remain on the bridge with limited ability to mitigate any further delay, the risk of triggering a technical default has elevated considerably compared with DBRS Morningstar’s last assessment on February 28, 2020.

The Design-Build Contractors (the DB Contractors; comprising affiliates of EllisDon Inc., Bombardier Inc., and Bechtel Corp.) confirmed that the construction challenges which had caused the additional delay have been fully rectified. They are currently forecasting that the bridge will be completed by August 2020. The DB Contractors also indicated that the remaining works at the bridge entails repetitive tasks to complete the remaining 13 segments. The lenders’ technical advisor also indicated that the remaining construction activities can be completed as planned, thus the current forecast service commencement date is achievable. Nevertheless, DBRS Morningstar notes that the bridge remains on the critical path and any further delay beyond the forecast construction milestone date of August 2020 could potentially lead to a further delay to the overall construction schedule in the absence of any effective mitigating measures. According to ProjectCo, the DB Contractors have completed about 70% of the construction work, and the remaining construction activities (other than the bridge) are not on the critical path. The delivery schedule of the light-rail vehicles (LRVs) remains unchanged, with the last LRV to be delivered in December 2020.

In regards to the Coronavirus Disease (COVID-19), ProjectCo provided the City of Edmonton (the City) with a notice of the occurrence of a Force Majeure Event pursuant to the epidemic or quarantine restrictions in February 2020, and multiple Relief Events related to designated changes in law and labour disruptions starting in March 2020. The City have been kept abreast of mitigation deployed by ProjectCo (e.g., train newly hired personnel, provide additional personal protective equipment, provide cleaning services) to mitigate the impacts. ProjectCo will likely submit a claim on the cost and schedule impact on the Valley Line light-rail transit Stage 1 project (the Project) once the situation stabilizes and the total impact is known.

DBRS Morningstar could take further negative rating action if it becomes apparent that the bridge cannot be completed as planned or a favourable negotiation of the ongoing claims resulting in a meaningful extension of the contractual deadlines does not materialize. In addition, the ratings could be further depressed if the Project encounters any unforeseen construction challenges for the remaining construction activities (other than the bridge) that are likely to negatively affect the current forecast service commencement date. DBRS Morningstar believes the negative rating pressure is likely to persist until there is a meaningful time extension granted by the City.

ESG CONSIDERATIONS
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.

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

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