DBRS Morningstar Confirms NorthwestConnect General Partnership at BBB (high), Stable Trends

DBRS Limited (DBRS Morningstar) confirmed NorthwestConnect General Partnership’s (ProjectCo) Issuer Rating as well as the rating on the Senior Amortizing Bonds – Series 1 (the Bonds) at BBB (high) with Stable trends. ProjectCo is the special-purpose entity created to design, build, finance, operate, and maintain Northwest Anthony Henday Drive (the Project or the Highway) under a 33.25-year agreement with the Province of Alberta (the Province; rated AA with Stable trend by DBRS Morningstar).

The Project is in its 12th year of operation, having achieved Traffic Availability on November 1, 2011, with all remaining deficiencies completed by October 2016. The road has generally performed well with no material deductions or interruptions to Traffic Availability. The Project has not incurred any deductions during the period.

Bridge inspections were completed in November 2022. Some items are scheduled to be completed by fall 2023, ahead of the required contract requirements of the next inspection in July 2024. ProjectCo does not expect any material deficiencies outside of planned regular maintenance, nor any costs requiring additional expenditure. Bridge sealing was completed in 2020, and the next sealing is scheduled for 2024 on a four-year cycle. Pavement inspection is required on a three-year interval and was completed in August 2023. The report is expected by October 2023, and ProjectCo does not anticipate any major findings.

The minimum operations and maintenance (O&M) and lifecycle resiliencies are 19% and 17%, respectively (at 1.05 times (x) breakeven debt service coverage ratio (DSCR)), which are supportive of the overall ratings. For the 12 months ended April 30, 2023, the DSCR was 1.44x, higher than the minimum of 1.15x expected in the financial model. The higher-than-expected DSCR was the result of the major rehabilitation payments received by the Province, which are in line with the Design, Build, Finance, and Operation Agreement. DBRS Morningstar notes the minimum DSCR of 1.15x in the financial model is at the low end of the current ratings, and continued erosion of credit metrics could result in negative ratings pressure. DBRS Morningstar does not believe a positive credit rating action is likely over the near term.

ENVIRONMENTAL, SOCIAL, AND 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 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 (October 11, 2023) https://www.dbrsmorningstar.com/research/421701

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.

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].

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

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