DBRS Morningstar Confirms Plenary Justice Okanagan LP at A (low) With a Stable Trend

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and the rating of the Series A Senior Notes (the Senior Notes) issued by Plenary Justice Okanagan LP (ProjectCo) at A (low) with Stable trends. ProjectCo is the special-purpose entity created to design, build, finance, and maintain the $185.5 million Okanagan Correctional Centre (OCC or the Project) under a 32.6-year Project Agreement (PA) signed between ProjectCo and the Province of British Columbia (the Province; rated AA (high) with a Stable trend by DBRS Morningstar). The rating confirmations reflect the achievement of total completion, the solid experience of PCL Construction Group Inc. and Honeywell Limited (Canada) (Honeywell or the Service Provider), the relatively low complexity of the work, the straightforward service obligations, and the supportive resiliencies.

The Certificate of Final Completion was received in September 2019 and the Service Provider continues to provide facility maintenance, lifecycle maintenance, and utilities-management services for the 30-year service phase of the Project. Operations have continued smoothly during the fourth year without material deductions. The energy consumption Test Period was completed in October 2019 and the results of the test were shared with ProjectCo and the Province, which noted that the Design & Construction Energy Target was achieved and the certificate was provided. The Design and Construction Energy Target was then adjusted to include various factors such as weather conditions and change orders (Adjusted Energy Target or AET). After evaluating energy usage against the AET for the last energy year, the overall consumption resulted in an energy gainshare of approximately $13,000 that was passed down to the Service Provider.

On April 3, 2020, the Service Provider filed a notification to ProjectCo that the Coronavirus Disease (COVID-19) pandemic qualified as a supervening event under the Facility Maintenance and Services Agreement. The Province acknowledged the possibility of this event, however the Project has been operating normally during the pandemic and this supervening event has not had a material impact on the Project.

The actual debt service coverage ratio (DSCR) as of December 31, 2020, was 1.23 times (x) per the Compliance Certificate. The projected financial metrics remain unchanged and adequate for the rating, with a minimum and average DSCR of 1.21x, as well as operating and maintenance and lifecycle breakeven metrics of 44% and 46%, respectively. The relationship between ProjectCo, the Service Provider, and the Province remains collaborative, with no material issues reported.

While not currently included in DBRS Morningstar’s expectations, material deductions and/or a Service Provider replacement could lead to a negative rating action. The potential for credit upside remains limited at the current rating given the fixed nature of the revenue stream.

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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