Morningstar DBRS Confirms Credit Ratings on New Brunswick (F-M) Project Company Inc. at A (high) with Stable Trends

DBRS Limited (Morningstar DBRS) confirmed its credit ratings on the Highway Bonds and the Tranche A and Tranche B Senior Toll-Based Debt (collectively, the Senior Debt) of New Brunswick (F-M) Project Company Inc. (NBFM or the Company) at A (high) with Stable trends. These credit rating confirmations are supported by Morningstar DBRS' current credit rating on the Province of New Brunswick (New Brunswick or the Province) at A (high) with a Stable trend.

KEY CREDIT RATING CONSIDERATIONS
NBFM is a not-for-profit corporation created to design, build, finance, operate, and maintain a portion of the Trans-Canada Highway between Fredericton and Moncton in New Brunswick (the Highway) under a 30-year public-private partnership (PPP) structure. The Highway is a divided four-lane road spanning roughly 195 kilometres between Jewetts Cove on the outskirts of Fredericton and the Magnetic Hill near Moncton. The Highway has controlled access and higher speed limits, allowing for better traffic flow and time savings compared with the older route it replaced, which was prone to flooding and had a poor safety record. The Highway is an essential element of the provincial road infrastructure. Since 2000, users do not have to pay tolls, as would be the case for a traditional toll road.

The credit ratings on the Senior Debt are a flow-through of the Province's long-term credit rating as the New Brunswick Highway Corporation (NBHC), a provincial Crown agent, directly funds the principal and interest (P&I) payments on the Senior Debt. Although the transaction is structured as a PPP, revenue available to service the Senior Debt is not subject to traffic volumes or abatement for the Company's performance and continues if the route is unavailable. Debt servicing also survives termination of the Company under the Project Agreement.

CREDIT RATING DRIVERS
The credit ratings on the Senior Debt are a flow-through of the Province's long-term credit rating. Any upgrade or downgrade is expected to follow a similar credit rating action on the Province. A positive credit rating action is unlikely as the credit ratings remain constrained by New Brunswick's weak economic fundamentals. A negative credit rating action could result from material weakening of the Province's credit quality, including some combination of sustained deterioration in operating results and the debt-to-GDP ratio as well as New Brunswick Power Corporation (NB Power) failing to reduce leverage, causing Morningstar DBRS to no longer treat NB Power as self-supported.

CREDIT RATING RATIONALE
In its March 20, 2024, commentary "New Brunswick's 2024 Budget: Steady Fiscal Performance Ahead of Provincial Elections," Morningstar DBRS noted that the Province's credit profile will remain stable, given modest budget surpluses and a downward trend in the debt-to-GDP ratio through the medium term, despite significant planned capital investments and expectations of subdued economic growth in 2024.

As Morningstar DBRS stated in its May 2023 credit rating confirmation of New Brunswick, the Province's credit profile demonstrates stability, supported by the government's focus on long-term financial sustainability, its recent track record of budget outperformance, and a robust population growth in the Province, notwithstanding significant cost and affordability pressures (worsened by the high inflation and interest rates), fluctuations in commodity prices, and the global geopolitical conflict contributing to a slowdown in economies of key trading partners.

P&I payments are made directly to the Trustee, eliminating commingling risk at the Company, and are funded by a statutory appropriation from the Province's Consolidated Revenue Fund, which is not subject to annual appropriation risk. While P&I payments of the Highway Bonds as well as the Tranche A Senior Toll-Based Debt and the Tranche B Senior Toll-Based Debt (together, the Toll-Based Debt) are not guaranteed by the Province, Morningstar DBRS considers the risk of default as a result of NBHC not meeting its sublease payments to be extremely low. This is based on its status as an agent of the Crown and the Province's fiscal capacity.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a relevant or significant effect on the credit analysis.

Credit rating actions on New Brunswick are likely to have an impact on this credit rating.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024), https://dbrs.morningstar.com/research/427030.

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

Morningstar DBRS applied the following principal methodology:
-- Morningstar DBRS Global Corporate Criteria (April 15, 2024), https://dbrs.morningstar.com/research/431186

The following methodology has also been applied:
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024), https://dbrs.morningstar.com/research/427030

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

A description of how Morningstar DBRS analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/431153.

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 info-DBRS@morningstar.com.

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.

Morningstar DBRS 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. Morningstar DBRS trends and credit ratings are under regular surveillance.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at info-DBRS@morningstar.com.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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