DBRS Morningstar Confirms Plenary Properties LTAP LP at “A” With Stable Trends

DBRS Limited (DBRS Morningstar) confirmed Plenary Properties LTAP LP’s (ProjectCo’s) Issuer Rating and the rating on ProjectCo’s Long-Term Senior Bonds (the Bonds) at “A,” both with Stable trends. ProjectCo is the special-purpose entity created by Plenary Canadian Holdings Inc. to design, build, finance, maintain, and provide IT and lifecycle services to the Communications Security Establishment (CSE) Long-Term Accommodation Project (LTAP). The project is governed by a 33.5-year Project Agreement (PA) signed between ProjectCo and the Government of Canada (the Crown; rated AAA with a Stable trend by DBRS Morningstar) as represented by Defence Construction Canada (1951) Ltd. The office and special-purpose building of approximately 893,000 square feet are located in Ottawa and consolidate all services previously provided through four separate facilities by CSE, Canada’s foreign intelligence and national cryptologic agency.

The project is in the eighth year of its 30-year service phase, having reached substantial completion on July 31, 2014. Honeywell Limited (the Facilities Management (FM) Service Provider), with a parent guarantee from Honeywell International Inc. (rated “A” with a Stable trend by DBRS Morningstar), performs all FM services and lifecycle services on behalf of ProjectCo to return the facility to a state of good repair upon expiry of the PA. ProjectCo’s obligations related to IT support, including associated maintenance and lifecycle services, are passed down on a back-to-back basis to ESIT Canada Enterprise Services Co. (previously Hewlett Packard (Canada) Co.), with a parent guarantee from DXC Technology Company (considered investment grade by DBRS Morningstar).

The project has maintained its sound operating performance record. Overall deductions during 2021 were lower than the amounts incurred in 2020 and are considered low by DBRS Morningstar. The Coronavirus Disease (COVID-19) pandemic has had no material impact on the project operations. The benchmarking exercise for IT services, as required to be conducted every five years from the third year onward under the PA, started in November 2021 and is expected to be completed this year.

ProjectCo indicates that its relationship with the Crown is collaborative, with no material issues and no ongoing disputes. The projected financial metrics for the service phase remain adequate for the rating, with resiliencies of more than 60% and a minimum debt service coverage ratio (DSCR) of 1.23 times (x). As per the latest compliance statement, ProjectCo reported a DSCR of 1.24x for the 12 months ended January 31, 2022. DBRS Morningstar is unlikely to take a positive rating action on the Bonds. Prolonged weak service performance, giving rise to the requirement for contractor replacement, could lead to a negative rating action.

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, 2021; https://www.dbrsmorningstar.com/research/383244), 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 03, 2021; https://www.dbrsmorningstar.com/research/373262).

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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