DBRS Morningstar Confirms Ratings on Mountain View Partners GP at A (low) With Stable Trends

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and the $380.8 million Series A Bonds (the Bonds) rating of Mountain View Partners GP (MVP or ProjectCo) at A (low). Both trends are Stable. ProjectCo is the special-purpose entity (SPE) created to design, build, finance, operate, and maintain the Southwest Calgary Ring Road Project (the Project) under a 35-year project agreement (PA) with the Province of Alberta (the Province; rated AA (low) with a Positive trend by DBRS Morningstar).

The project achieved the Priority New Infrastructure Traffic Availability on October 1, 2020, and the Remaining New Infrastructure Traffic Availability on October 1, 2021, as scheduled. There is no remaining minor work or deficiencies; Construction Completion is expected to be achieved by year-end.

The Project is in its 22nd month of operations, and there have been no material payment deductions incurred to date. Full availability payments started on October 1, 2021, and will continue until the PA is either terminated or expires on September 30, 2051. ProjectCo retained lifecycle and handback obligations, as detailed in the PA, but passed down the operations and maintenance (O&M) work to Alberta Highway Services Ltd. (AHSL) through a fixed-price O&M contract. DBRS Morningstar notes that the lifecycle obligation retained by ProjectCo introduces an element of risk to the Project. Although a three-year forward-looking rehabilitation reserve account was maintained since October 1, 2020, which mitigates some of the risk, persistently higher-than-expected traffic volume or faster-than-expected deterioration of the infrastructure could drive lifecycle costs up considerably (beyond the reserve amount), without any compensation coming from the Government of Alberta Ministry of Transportation (Alberta Transportation). If that were to occur, it could affect the financial metrics significantly. According to ProjectCo, there have been no material rehabilitation costs since the commencement of operations. The relationship with Alberta Transportation and AHSL remains positive.

For the 12-month operating period from October 2021 to September 2022 and the 12-month period from July 2022 to June 2023, the debt service coverage ratio (DSCR) was 1.23 times (x) and 1.22x, respectively (excluding the impact of debt service reserve accounts withdrawals). The minimum DSCR was projected to be 1.20x, which is standard for availability-based public-private partnership projects rated in the “A” range. The equity lockup DSCR is set as 1.135x, which is lower than is typically seen but is considered appropriate for the rating, given the O&M cost resilience of 45.4% and lifecycle cost resilience of 33.0% based on the 2022 updated financial model.

DBRS Morningstar notes that a material deterioration of the financial metrics may result in a negative rating action. Given the availability-based payment structure and little potential for meaningful improvement in the financial forecast, a rating upgrade 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/416784 (July 4, 2023).

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

DBRS Morningstar applied the following principal methodology:
-- Global Methodology for Rating Public-Private Partnerships (August 30, 2022; https://www.dbrsmorningstar.com/research/402155).

The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

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.

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 credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

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 credit ratings are under regular surveillance.

Information regarding DBRS Morningstar credit ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com or contact us at [email protected].

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