DBRS Morningstar Upgrades Strait Crossing Development Inc. to BBB (low) From BB (high)

DBRS Limited (DBRS Morningstar) upgraded Strait Crossing Development Inc.’s (SCDI or the Company) Issuer Rating to BBB (low) from BB (high) and changed the trend to Stable from Positive. DBRS Morningstar also confirmed its credit rating on the 6.17% Revenue Bonds at BBB (low) with a Stable trend. Previously, the credit rating on the 6.17% Revenue Bonds was one notch higher than that of the Company, as a result of the enhancement from the recovery rating, which is no longer needed as the Issuer Rating is now investment grade. This upgrade of the Issuer Rating reflects a return of debt service coverage ratios (DSCRs) to investment-grade levels after a prolonged period of pressured financial metrics and the recovery on traffic and revenues as projected. Also, the General Revenue Account (GRA) funds available are sustainably at pre-Coronavirus Disease (COVID-19) pandemic levels, supporting the upgrade.

Traffic for 2022 recovered significantly, rising to approximately 95% of pre-pandemic volumes. As of Q3 2023, traffic had reached its highest level since the start of the concession. The DSCR for 2022, as calculated by DBRS Morningstar, was 1.37 times (x). DBRS Morningstar expects DSCRs to remain at BBB levels until the end of the concession, as well as a healthy GRA balance comparable with pre-pandemic levels.

As of January 1, 2023, the Government of Canada imposed a toll freeze so that 2023 toll rates remain the same as in 2022. As compensation, in January 2023, SCDI received $2.5 million in government assistance, which the Company is recognizing each month based on traffic volumes. As of September 30, 2023, SCDI had recognized $2.11 million.

DBRS Morningstar could take a negative credit rating action if there is significant decline in traffic or change in traffic mix such that revenues fall materially, affecting the Company’s business and financial profile, resulting in a materially lower GRA balance and lower DSCR, as calculated by DBRS Morningstar. Over time, if sustainable DSCRs exceeding 1.50x are achieved, DBRS Morningstar may take a positive credit rating action.

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 ratings are under regular surveillance.

DBRS Morningstar will publish a full report shortly that will provide additional analytical detail on this credit 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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