DBRS Morningstar Assigns Rating of BBB with a Stable Trend to Teranet Holdings LP's Series 2020-2 Debt Issue

DBRS Limited (DBRS Morningstar) assigned a rating of BBB with a Stable trend to the $300 million 3.940% Series 2020-2 Senior Secured Bonds (the Senior Bonds) issued by Teranet Holdings LP (the Company; rated BBB with a Stable trend by DBRS Morningstar). The Senior Bonds have been issued from the May 21, 2020, Offering Memorandum and will mature on December 15, 2030. DBRS Morningstar notes that the Company issued $550 million 3.544% Series 2020-1 Senior Secured Bonds on June 11, 2020. The total amount raised is $850 million. The BBB rating is based upon the rating on already-outstanding series of the above-mentioned debt instrument.

The intended use of the proceeds from the senior bond issue is to refinance the remaining $300 million Series 2010-2 Senior Secured Bonds, which mature on December 16, 2020. The Company early redeemed $400 million of the $700 million Series 2010-2 Senior Secured Bonds on June 18, 2020, with proceeds from the 3.544% $550 million, Series 2020-1 Senior Secured Bond issuance, with the remaining $300 million to redeem on the maturity date of December 16, 2020. The financing is consistent with DBRS Morningstar’s expectations incorporated in the October 2, 2020, confirmation of the Company’s ratings. The Senior Bonds rank pari passu with all other senior secured and unsubordinated obligations of the Company. As a result, the rating is consistent with the ratings DBRS Morningstar previously assigned to the Company’s similarly ranked senior secured bonds outstanding.

Ontario registration volumes decreased by 4.8% in Q3 2020 compared with the same period in the prior year. The government restrictions introduced in March 2020 as a result of the Coronavirus Disease (COVID-19) pandemic negatively affected housing market transactions in Q2 2020, resulting in lower registration volumes in July and August of 2020 because of the lag effect from sale to close. Search and writs volumes increased by 3.2% and 1.4%, respectively, versus 2019. Operating cash flow increased slightly by 1.8% over Q3 2019 driven by the housing market recovery. While net revenue increased by 2.5% on a trailing 12-month basis when compared with September 2019, EBITDA remained relatively unchanged, resulting in a slight debt service coverage ratio decrease to 1.82 times (x) at September 30, 2020 (1.90x with Manitoba) from 1.85x when compared with the same period in the prior year. The easing of government restrictions with respect to social distancing late in the second quarter and early in the third quarter saw some seasonal shift in real estate market activity demand, which resulted in a rebound of sales volumes in Q3 2020. Recent real estate market trends show that the initial assumptions for a dampening in the market are not as severe as DBRS Morningstar initially expected, with the Toronto Regional Real Estate Board reporting sales activity on a cumulative basis at the end of October more than 4.1% higher when compared with 2019. DBRS Morningstar continues to view the coronavirus pandemic as a temporary disruption to the Ontario real estate market, with the medium- and longer-term fundamentals (strong immigration/population growth, low interest rates, housing density, and continued economic growth) of the real estate market remaining intact.

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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