DBRS Morningstar Confirms Ratings on Mountain View Partners GP at A (low) with Stable Trends

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and the $380.8 million Series A Bonds rating of Mountain View Partners GP (ProjectCo) at A (low). All trends are Stable. ProjectCo is the special-purpose entity created to design, build, finance, operate, and maintain the Southwest Calgary Ring Road Project (the Project) under a 35-year project agreement (PA) with the Province of Alberta (the Province; rated AA (low) with a Negative trend by DBRS Morningstar). The Stable trends are reflective of the pace of construction and the anticipation that it will be completed on schedule.

KGL Constructors (the Construction Contractor)—a joint and several partnership of Kiewit Management Co., Graham Infrastructure LP, and Ledcor CMI Ltd.—has assumed responsibility for ProjectCo’s design, construction, and commissioning obligations under the PA with a fixed-price, date-certain contract. As of July 31, 2020, approximately 87.5% of construction works had been completed as measured by the earned contract value. Although there is a slight variance between the forecast and funds released, the Lenders’ Technical Advisor (Altus Group Limited) opined that it is not reflective of an overall project delay, that the construction work is generally progressing in line with the current schedule, and that the Construction Contractor remains on track to achieve the Priority New Infrastructure (PNI) and Remaining New Infrastructure (RNI) Traffic Availability Target Dates. DBRS Morningstar notes that the road safety audit has begun for the PNI portion of the Project. All permits required for current construction activities have been received. Twenty-three change order confirmations have been issued and confirmed by the Province with a total cost increase of $8.3 million.

ProjectCo, on behalf of the Construction Contractor, has submitted certain relief event notices to the Province. Discussions to resolve these relief related events are ongoing. DBRS Morningstar notes that the Construction Contractor has mitigated any delay impacts and no changes have occurred to traffic availability dates due to these events.

ProjectCo, on behalf of the Construction Contractor, has also submitted a relief event notice to the Province regarding potential Coronavirus Disease (COVID-19)-related impacts, and ProjectCo has advised that the three project parties continue to assess and discuss resolution to the coronavirus-related impacts. DBRS Morningstar notes that the Construction Contractor has mitigated any delay impacts and no changes have occurred to traffic availability dates due to the coronavirus.

Full availability payments will start after RNI traffic availability, which is scheduled for October 1, 2021, and will continue until the PA is either terminated or expires on September 30, 2051. ProjectCo retained lifecycle and handback obligations detailed in the PA, but passed down the annual operating and maintenance (O&M) works to Alberta Highway Services Ltd. through a fixed-price O&M Contract. The minimum debt service coverage ratio (DSCR) was projected to be 1.20 times (x) at financial close, which is standard for availability-based public-private partnership projects in the “A” range. The equity lockup DSCR is set as 1.135x, which is lower than typically seen, but considered to be appropriate for the rating, given the O&M cost resilience of 45.1% and lifecycle cost resilience of 31.6% in the financial model.

DBRS Morningstar notes that, while not expected, the rating could be negatively affected if it becomes apparent that PNI traffic availability will be materially delayed without corresponding schedule relief by the Province. Given the availability-based payment structure and little potential for meaningful improvement in the financial forecast, a rating upgrade is considered unlikely.

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 19, 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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