DBRS Morningstar Confirms TransLink at AA, R-1 (middle); Stable Trends

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Senior Unsecured Debt rating of South Coast British Columbia Transportation Authority (TransLink or the Authority) at AA and its Commercial Paper (CP) rating at R-1 (middle). All trends are Stable. The ratings remain well supported by TransLink’s strong legislative framework, its effective financial management framework and practices, and the strength of the underlying economy.

TransLink has been significantly affected by the Coronavirus Disease (COVID-19) pandemic. TransLink is maintaining service levels to support public health and economic recovery efforts, however, a significant budget gap has emerged as ridership, fuel tax, and parking-related revenues have fallen sharply. The near-term impact on operating results is likely to be largely (if not entirely) offset by expense management and additional federal/provincial operating funding. In July, the Federal Government announced $1.0 billion in funding for transit authorities with matching contributions from provincial governments. TransLink is now working with the Province to determine the amount and the timing of the funding.

The outlook for subsequent years is less clear and will depend on the strength of the recovery, the longer-term effects of the pandemic on ridership (e.g., increased remote work and housing location decisions), and the extent to which senior governments continue to provide operating support. DBRS Morningstar expects further support is likely to be forthcoming as the federal and provincial governments will require transit providers to maintain service levels for economic and public health reasons.

TransLink has curtailed some capital investment initiatives in light of financial pressures and longer term ridership uncertainty stemming from the pandemic, however, the Authority continues to move forward on several major expansion projects contained in the Mayors' Vision.

The outlook for capital spending and debt will depend on the extent to which further operating and capital support is provided by senior governments. The Government of Canada is widely expected to launch new infrastructure spending programs to stimulate economic activity in the coming year. As in past rounds, these programs are likely to emphasize public infrastructure, urban issues, and environmental considerations. The extent to which TransLink participates in these programs depends, in part, on the outlook for ridership and operating revenue. TransLink is required to prepare fully funded Investment Plans at least once every three years.

TransLink is now recasting its Investment Plan. Consequently, the Authority has not revised its multi-year debt forecast. However, the impact of the pandemic on ridership and revenue suggests that debt levels are likely to be lower than those forecast under the previous plan. Current projections suggest that debt will rise to $4.3 billion in 2021, which is about $600 million lower than previous projections.

RATING DRIVERS
DBRS Morningstar expects the ratings to remain stable through the medium term. DBRS Morningstar could downgrade the Authority’s ratings if operating results deteriorate significantly on a sustained basis and the debt burden rises significantly above current projections ($5.3 billion in 2023). DBRS Morningstar does not believe that an upgrade is likely over the medium term because of anticipated debt growth.

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 methodologies are Rating Canadian Municipal Governments (May 13, 2020) and DBRS Morningstar Criteria: Commercial Paper Liquidity Support for Nonbank Issuers (March 10, 2020), 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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