Morningstar DBRS Confirms Maritime Link Financing Trust at AAA, Stable Trend

DBRS Limited (Morningstar DBRS) confirmed the credit rating of the 3.50% Bonds, Series A (the Bonds) issued by Maritime Link Financing Trust (ML Financing Trust or the Issuer) at AAA with a Stable trend. The Issuer is a special-purpose funding trust established to facilitate the financing of the Maritime Link Transmission Project (the Project). The Bonds of $1.3 billion will fully amortize by the December 1, 2052, maturity date.

The Project is a 500-megawatt (MW) electric transmission line that connects Nova Scotia to Newfoundland and Labrador (Newfoundland) across the Cabot Strait. The Issuer's sole business is to issue the Bonds and on-lend the proceeds to NSP Maritime Link Inc. (NSPML), the project company responsible for constructing and operating the Project. Upon achieving the in-service date, debt service is to be funded by the principal and interest received on the back-to-back loan to NSPML, which in turn collects revenue from Nova Scotia Power Inc. (Nova Scotia Power; rated BBB (high) with a Stable trend ) and, in turn, Nova Scotia's ratepayers. The Project achieved its in-service status on January 15, 2018. The Project began to transmit the Nova Scotia block of energy in August 2021, as the Muskrat Falls hydro plant was able to generate sufficient electricity power. The Project's operations for the past 12 months have continued to be smooth with a high availability rate. The Nova Scotia Utility and Review Board (UARB) approved the final rate application in February 2022. In January 2024, UARB further agreed to release the 2022 and 2023 holdback of approximately $12 million. By year-end 2024, NSPML expects to submit an application to the UARB to terminate the holdback mechanism as the Project has been consistently receiving the Nova Scotia block of energy from the Muskrat Falls hydro project.

KEY CREDIT RATING CONSIDERATIONS
The credit rating is based on the unconditional and irrevocable federal loan guarantee (the Guarantee) provided by the Government of Canada (Canada or the Guarantor). This credit rating action follows Morningstar DBRS' recent confirmation of Canada's sovereign credit rating at AAA with a Stable trend (see the related press release dated September 6, 2024).

CREDIT RATING DRIVERS
Morningstar DBRS expects the credit rating of the Bonds will move in lockstep with Canada's sovereign credit rating, irrespective of the Project's performance. Any positive or negative credit rating action on Canada will trigger the same credit rating action on the Bonds.

CREDIT RATING RATIONALE
Morningstar DBRS notes that the Guarantee has met its criteria for a flow-through of Canada's sovereign credit rating to the Bonds. The Guarantee constitutes the irrevocable, unconditional, absolute, and continuing obligation of Canada. There is no requirement to exhaust recourse against the Issuer before bondholders are entitled to the payment from Canada; all defences are waived by the government and subrogation rights are postponed as long as the guaranteed obligations are still outstanding; and no amendment of the Guarantee is permitted, except by agreement with the Indenture Trustee. Furthermore, release of the Guarantor is permitted only when all of its obligations are fully repaid.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS

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

There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

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 Factors in Credit Ratings (August 13, 2024) https://dbrs.morningstar.com/research/437781.

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 Factors in Credit Ratings (August 13, 2024), https://dbrs.morningstar.com/research/437781.

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.

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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