DBRS Morningstar Confirms TransLink at AA, R-1 (middle); Stable Trends

On October 14, 2022, 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 (CP) 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.

For the year ended December 31, 2021, TransLink reported a deficit of $198.5 million, compared with a surplus of $429.6 million the prior year. This reflects senior government relief funding recognized in 2020 that was partially intended to offset net operating losses in 2021. On a DBRS Morningstar-adjusted basis, this equates to a surplus of $84.2 million after recognizing the senior government funding dedicated to cover operating losses for the year 2021.

For 2022, TransLink budgeted for a deficit of $46.9 million. Based on the second quarter report, TransLink is now forecasting a surplus of $89.2 million for 2022. This reflects a combination of additional senior government funding relief aimed to offset pandemic-related losses in 2023—25 and higher investment income offset by lower transit fare revenue. After excluding senior government relief funding and a write-down of previously capitalized costs, TransLink is forecasting a deficit of $56.5 million on a full-year basis, which is slightly behind budget largely due to a somewhat slower-than-anticipated recovery in ridership.

Given a permanent shift to hybrid working arrangements and ongoing aversion to crowded spaces, the pace of ridership recovery has been slower than planned. This has created a structural deficit that will need to be addressed over the longer term through the next iteration of the 10-year investment plan. TransLink expects that transit ridership may only reach 80% of pre-pandemic levels through the near to medium term. When combined with declining fuel tax revenue, this will require new sustainable revenue sources in order to maintain financial sustainability. TransLink is working with its stakeholders to identify new revenue sources to mitigate these pressures.

In May 2022, TransLink's new 10-year Investment Plan was approved, which included a revised long-term debt forecast. Given the slower pace of planned investment and upfront provincial contributions, debt growth is expected to be slower than under the previous investment plan. DBRS Morningstar's measure of net tax-supported debt is forecast to rise to $4.0 billion (+3.0%) in 2022 before gradually reaching $4.6 billion by 2024. This would equate to net tax-supported debt per capita of $1,593 or 0.3% of Metro Vancouver's taxable assessment. These levels remain consistent with the AA rating.

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 materially above current projections ($4.6 billion in 2024). DBRS Morningstar does not believe that an upgrade is likely over the medium term because of anticipated, albeit slower, debt growth.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
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 methodologies are Rating Canadian Municipal Governments (April 14, 2022) and DBRS Morningstar Criteria: Commercial Paper Liquidity Support for Nonbank Issuers (March 1, 2022) , 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.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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