DBRS Morningstar Confirms Maritime Link Financing Trust at AAA, Stable Trend

DBRS Limited (DBRS Morningstar) confirmed the rating of the 3.50% Bonds, Series A (the Bonds) issued by Maritime Link Financing Trust (ML Financing Trust or the Issuer) at AAA with a Stable trend. The Issuer is a special-purpose funding trust established to facilitate the financing of the Maritime Link Transmission Project (the Project). The Bonds of $1.3 billion will fully amortize by the December 1, 2052, maturity date. The rating is based on the unconditional and irrevocable federal loan guarantee (the Guarantee) provided by the Government of Canada (Canada or the Guarantor). This rating action follows DBRS Morningstar’s confirmation of Canada’s sovereign rating at AAA with a Stable trend on September 9, 2022 (see DBRS Morningstar’s related press release dated September 9, 2022).

DBRS Morningstar notes that the Guarantee met its criteria for a flow-through of Canada’s sovereign rating to the Bonds. The Guarantee constitutes the irrevocable, unconditional, absolute, and continuing obligation of Canada. There is no requirement to exhaust recourse against the Issuer before (1) bondholders are entitled to the payment from Canada; (2) all defences are waived by the government and subrogation rights are postponed as long as the guaranteed obligations are still outstanding; and (3) no amendment of the Guarantee is permitted, except by agreement with the Indenture Trustee. Furthermore, release of the Guarantor is permitted only when all of its obligations are fully repaid. DBRS Morningstar expects that the Bonds’ rating will continue to move in tandem with Canada’s sovereign rating, irrespective of the Project’s performance. Any upgrade or downgrade is expected to follow a similar rating action on Canada.

The Project is a 500-megawatt (MW) electric transmission line connecting Nova Scotia to Newfoundland and Labrador (Newfoundland) across the Cabot Strait. ML Financing Trust’s sole business is to issue the Bonds and on-lend the proceeds to NSP Maritime Link Inc. (NSPML), the project company responsible for construction and operations. Upon achieving the in-service date, debt service is to be funded by principal and interest received on the back-to-back loan to NSPML, which in turn collects revenue from Nova Scotia Power Inc. (Nova Scotia Power; rated A (low) with a Stable trend by DBRS Morningstar) and, in turn, Nova Scotia’s ratepayers. The Project achieved its in-service status on January 15, 2018. The Project has started to transmit the Nova Scotia Block of energy since August 2021 as the Muskrat Falls hydro plant started to generate sufficient electricity power. NSPML has been collecting revenue from Nova Scotia Power and, in turn, from Nova Scotia’s ratepayers on an interim basis since Q1 2018. The amount is more than sufficient to service the Project’s debt obligations. The final rate application was submitted to the Nova Scotia Utility and Review Board (UARB) in January 2022. The UARB approved the rate application on February 8, 2022 on the basis that was largely consistent with the expectation. There will be a monthly holdback of $2 million until Muskrat Falls hydro plant delivers at least 90% of its contracted energy amount to NSPML.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS

The ESG factors refer to those associated with the Guarantor or Canada.

Rating actions on Canada are likely to have an impact on this rating. ESG factors that have a significant or relevant effect on the credit analysis of Canada are discussed separately at https://www.dbrsmorningstar.com/issuers/2100.

There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (May 17, 2022).

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

The principal methodology is DBRS Morningstar Criteria: Guarantees and Other Forms of Support (April 4, 2022; https://www.dbrsmorningstar.com/research/394683), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

A description of how DBRS Morningstar analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/397223/interplay-of-global-corporate-finance-rating-methodologies-when-analyzing-corporate-finance-transactions.

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.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.

DBRS Morningstar will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at [email protected].

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