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

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 rating at R-1 (middle). All trends are Stable. The credit 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, 2022, TransLink reported a surplus of $129.6 million compared with a deficit of $198.5 million the prior year. This reflects senior government relief funding recognized in 2022 that was intended to partially offset net operating losses between 2023 and 2025. On a DBRS Morningstar-adjusted basis, this equates to a deficit of $32.3 million after removing the effect of senior government relief funding intended for future years.

For 2023, TransLink budgeted a surplus of $5.2 million, which largely reflects significant growth in investment income from an upfront payment received from the Province (British Columbia; rated AA (high) with a Stable trend by DBRS Morningstar) in 2022 related to the Golden Ears Bridge toll replacement agreement. Ridership is expected to return to pre-pandemic levels in 2023 but will reflect a shift in consumer behaviour given the current preference for remote and hybrid work arrangements. Over the long term, ridership growth is expected to stem from population growth, employment levels, and service expansion. TransLink recorded a surplus of $469.2 million in Q2 2023. This largely reflects additional unplanned senior government relief funding of $478.9 million intended to offset pandemic-related losses in 2023–25.

The pandemic created permanent shifts in ridership behaviour given the resulting increase in remote and hybrid work, which affected transit-related revenues. Moreover, the increasing adoption of zero-emission and fuel efficient vehicles has accelerated the decline of fuel tax revenue. These two funding channels formed 46% of TransLink's revenue in 2022.

In May 2022, TransLink's new 10-year Investment Plan, which included a revised long-term debt forecast, was approved. The Authority is working with its stakeholders to identify new revenue sources to mitigate the aforementioned funding pressures and the 2025 Investment Plan is expected to address these new sources of income and any remaining shortfalls. 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 $4.1 billion (+3.1%) in 2023 before gradually reaching $5.2 billion by 2025. This would equate to net tax-supported debt per capita of $1,730 or 0.32% of Metro Vancouver's taxable assessment. These levels remain consistent with the AA credit rating.

CREDIT RATING DRIVERS
DBRS Morningstar expects the credit ratings to remain stable through the medium term. DBRS Morningstar could downgrade the Authority’s ratings if operating results deteriorated significantly on a sustained basis and the debt burden rose materially above current projections. DBRS Morningstar does not believe that an upgrade is likely over the medium term because of the anticipated, albeit slower, debt growth.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors 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 (July 4, 2023) at https://www.dbrsmorningstar.com/research/416784/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

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

DBRS Morningstar applied the following principal methodology:
-- Rating Canadian Municipal Governments (April 28, 2023) https://www.dbrsmorningstar.com/research/413266/rating-canadian-municipal-governments.

The following methodology has also been applied:
-- DBRS Morningstar Criteria: Commercial Paper Liquidity Support for Nonbank Issuers (February 24, 2023) https://www.dbrsmorningstar.com/research/410196/dbrs-morningstar-global-criteria-commercial-paper-liquidity-support-for-nonbank-issuers.

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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