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 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.

In response to the ongoing Coronavirus Disease (COVID-19) pandemic and significant decline in ridership, TransLink has had to reevaluate key priorities, including steps to slow the previously planned expansion of certain bus and rail service. Lower ridership, along with reduced fuel tax and parking rights tax, has been mitigated by efforts to control spending and senior government relief funding. However, DBRS Morningstar notes that the timing and recognition of government funding add volatility to results in the near term.

For 2021, TransLink budgeted for a surplus of $8.1 million, which equates to a DBRS Morningstar-adjusted post-capital expenditure (capex) deficit of $114.0 million after incorporating anticipated growth in planned capex and recognizing senior government funding in the year in which it was intended. After having fallen to 17% of previous levels, the budget assumed that ridership would return to 51% of pre-pandemic levels in 2021. However, because of rising coronavirus cases and the reintroduction of certain public health measures in the first half of 2021, the economic recovery and expected improvements in ridership have been somewhat slower than planned. As of September 2021, ridership has recovered to 55% of pre-pandemic levels. Furthermore, in accordance with accounting standards, senior government relief funding budgeted for 2021 was recognized in 2020, creating an additional budget variance. On a full-year basis, a deficit of $304.4 million (unadjusted) is now projected.

The medium-term outlook remains subject to considerable uncertainty. The recovery in ridership will depend on the ongoing transmission and severity of coronavirus variants, the strength of the economic recovery, the extent to which companies continue to work remotely, and general concerns about using public transit during a pandemic. TransLink expects ridership and economic activity will remain subdued through the remainder of 2021 and into 2022. DBRS Morningstar notes that the coronavirus pandemic may have permanently altered the outlook for transit ridership, which could require TransLink to seek alternative sources of revenue, including additional government support, or consider service reductions, to return to a sustainable operating position over the medium term.

TransLink is currently updating its 10-year Investment Plan, expected to be released in spring 2022. Consequently, the Authority does not have a revised long-term debt forecast, but given a stronger cash position and reduced near-term debt needs, debt growth is likely to evolve more slowly than previously planned. DBRS Morningstar's measure of net tax-supported debt is forecast to decline to $3.9 billion (-5.1%) in 2021 before rising to $4.3 billion in 2022. Under the previous plan, net tax-supported debt was expected to reach $5.1 billion by 2022 and peak at $5.3 billion in 2023.

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 previous 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 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 methodologies are Rating Canadian Municipal Governments (May 3, 2021; https://www.dbrsmorningstar.com/research/377882) and DBRS Morningstar Criteria: Commercial Paper Liquidity Support for Nonbank Issuers (March 9, 2021; https://www.dbrsmorningstar.com/research/375001), 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].

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577