DBRS Morningstar Confirms Credit Ratings on CSS (FSCC) Partnership at A (low), Stable Trends

DBRS Limited (DBRS Morningstar) confirmed CSS (FSCC) Partnership’s (ProjectCo) Issuer Rating and the credit rating on ProjectCo’s $190.3 million Senior Secured Debt (the Bonds) at A (low) with Stable trends. ProjectCo is the special-purpose entity created to design, build, finance, and maintain a new, approximately 665,000 square-foot (sf) Forensic Services and Coroner’s Complex (the Project) under a 32.5-year public-private partnership with Ontario Infrastructure and Lands Corporation (OILC; formerly Infrastructure Ontario).

The Project has been performing well with no major operating concerns. The achievement of substantial completion on February 15, 2013, marked the commencement of the 30-year service phase, entailing routine maintenance of the facility and its electromechanical equipment as well as management of energy consumption and lifecycle maintenance to return the facility to OILC in a state of good repair upon expiry of the project agreement. Final completion was achieved on May 26, 2016.

Availability payments have been steady with minimal deductions and low failure points. For the 12 months ended September 30, 2023, there were approximately 986 failure points, well within the tolerance threshold. DBRS Morningstar does not expect any significant changes in facility operations for the upcoming year and believes that operations will continue in a good state. ProjectCo indicated that the service provider and OILC maintained a good working relationship with no ongoing disputes. The lifecycle resiliency of 45% and the minimum debt service coverage ratio (DSCR) of 1.25 times (x) are supportive of the credit ratings.

The service provider is 10647802 Canada Limited, operating as Dexterra Integrated Facilities Management (Dexterra), with Fairfax Financial Holdings Limited (Fairfax; rated A (low) with a Stable trend by DBRS Morningstar) as the service guarantor. Dexterra became the service provider on March 12, 2018, after acquiring the interests of Carillion Services (FSCC) Inc. in the service contract. After Horizon North Logistics Inc. acquired the outstanding shares of 10647802 Canada Limited in May 2020, Fairfax indirectly holds only 49% interest in the service provider but continues as the service guarantor.

As per the latest compliance certificate, the Project’s DSCR was 1.27x for the 12 months ended July 31, 2023. DBRS Morningstar notes that, while not expected, a prolonged period of operational difficulties that lead to substantial failure points could place negative pressure on the credit ratings. An improvement in resiliencies could lead to a positive credit rating action.

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 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.

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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