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 (the Bonds) rating of Mountain View Partners GP (MVP or ProjectCo) at A (low). Both trends are Stable. ProjectCo is the special-purpose entity (SPE) 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).

KGL Constructors (the Construction Contractor)—a joint and several partnership of Kiewit Management Co. (Kiewit), Graham Infrastructure LP (Graham), and Ledcor CMI Ltd. (Ledcor CMI)—has assumed responsibility for ProjectCo’s design, construction, and commissioning obligations under the PA with a fixed-price, date-certain contract. The Project achieved the Priority New Infrastructure (PNI) Traffic Availability, as scheduled on October 1, 2020, and shortly thereafter received the final $45.3 million of the total $580.6 million PNI Progress Payments from the Province to partially repay the senior construction facility and other project expenses. The Construction Contractor is currently working on some minor deficiencies related to the PNI scope of work and ProjectCo indicated that the deficiencies are relatively minor and do not affect the function or safety of the roadways. The Construction Contractor also issued the Anticipated Traffic Availability Notice to ProjectCo in March 2021 confirming that the Remaining New Infrastructure (RNI) Traffic Availability is on schedule to be achieved as planned on October 1, 2021.

DBRS Morningstar understands that ProjectCo and the Province have reached an agreement to resolve claims for entitlement to relief in relation to the Coronavirus Disease (COVID-19) pandemic. The Claims Resolution Agreement associated with the impacts of the pandemic was fully executed in January 2021 and includes a settlement for additional costs incurred by the Construction Contractor. DBRS Morningstar further notes that the Construction Contractor has mitigated the impact of any delays and no changes have occurred to the RNI Traffic Availability Date because of the coronavirus pandemic.

Since the achievement of PNI Traffic Availability, the Project has been receiving PNI operating and maintenance (O&M) payments and PNI major rehabilitation payments from the Province to cover PNI O&M cost, PNI major rehabilitation cost, and SPE cost. The remaining costs related to the RNI scope of work, including the interest expenses, are funded primarily by the mid-term credit facility and PNI capital payments received from the Province post achievement of PNI Traffic Availability.

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, as detailed in the PA, but passed down the annual O&M work to Alberta Highway Services Ltd. through a fixed-price O&M contract. DBRS Morningstar notes that because lifecycle obligation is retained by ProjectCo, it introduces an element of risk to the Project. Although the presence of a three-year look-forward lifecycle reserve mitigates some of the risk, persistently higher-than-expected traffic volume or faster-than-expected deterioration of the infrastructure could drive lifecycle costs up considerably (beyond the reserve amount), without any compensation coming from the Government of Alberta’s Ministry of Transportation. If that were to occur, it could potentially affect the financial metrics significantly.

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 (PPP) projects rated in the “A” range. The equity lockup DSCR is set as 1.135x, which is lower than is typically seen, but is 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 at financial close.

DBRS Morningstar notes that, while not expected, the rating could be negatively affected if it becomes apparent that RNI Traffic Availability will be materially delayed. Furthermore, a material deterioration of the financial metrics may result in a negative rating action. 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 can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodology is Rating Public-Private Partnerships (August, 19, 2020; https://www.dbrsmorningstar.com/research/365975), which can be found on dbrsmorningstar.com under Methodologies & Criteria. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021; https://www.dbrsmorningstar.com/research/373262).

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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