DBRS Morningstar Confirms Integrated Team Solutions SCOC Partnership Ratings at A (low), Stable Trends

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and the Senior Long Term Bonds rating of Integrated Team Solutions SCOC Partnership (ProjectCo) at A (low) with Stable trends. ProjectCo is a special-purpose vehicle created to design, build, finance, and maintain the Phase One Civic Operations Centre (the Project), mainly consisting of a Transit Operations Facility and a Snow Management Facility, under a 27-year project agreement (PA) with the City of Saskatoon (the City).

The ratings are underpinned by the satisfactory performance and the relatively straightforward tasks during the service phase. ProjectCo dropped down, on a back-to-back basis, all service risks and responsibilities to EQUANS Services Inc.(EQUANS Services, or the Service Provider; formerly ENGIE Services Inc.) over the entire service phase through a fixed-price Service Contract. DBRS Morningstar understands that the Service Provider’s performance will be supported by a parent company guarantee from EQUANS US Inc. (formerly ENGIE Energy Services SA).

Final Completion was achieved on September 15, 2022. For the nine months ended September 2022, the actual deductions have been minimal, well below any default thresholds under the PA or the Service Contract. DBRS Morningstar notes that any deductions are fully passed down to EQUANS Services. As per the 2021 Energy Analysis Report, electricity consumption was 27.3% lower than the targeted values, although gas consumption was 31.6% higher than the targeted values. Overall, the lower electricity consumption, partially offset by the higher gas consumption resulted in a $31,579 net energy consumption gainshare in 2021, which has been accepted by the City and passed down to the Service Provider. The project has not been materially affected by the Coronavirus Disease (COVID-19) pandemic.

The debt service coverage ratio (DSCR) for the 12 months ended September 2022 was reported to be approximately 1.16 times (x), in line with our expectation. Estimated year-end DSCR is projected to be 1.13x, mainly because of an one-time advance payment of insurance premium in 2022, although the long-term projected minimum DSCR remains at 1.15x.

The forecast minimum DSCR of 1.15x and equity lock-up DSCR of 1.12x are lower than typically seen for availability-based public-private partnership projects in the “A” rating range; however, the operating and maintenance resilience of 53.3% and lifecycle resilience of 46.9% are supportive of the rating and reflective of a fairly simple suite of services to be provided. Negative rating pressure could result if there is material deterioration of the operating and financial performance of the Project. Given the fixed nature of the availability-based cost and revenue structure, DBRS Morningstar believes that a positive rating action is unlikely.

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 methodology is Global Methodology for Rating Public-Private Partnerships (https://www.dbrsmorningstar.com/research/402155/global-methodology-for-rating-public-private-partnerships; August 30, 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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