Morningstar DBRS Confirms Integrated Team Solutions SCOC Partnership's Credit Ratings at A (low) With Stable Trends

DBRS Limited (Morningstar DBRS) confirmed the Issuer Rating and Senior Long Term Bonds credit rating of Integrated Team Solutions SCOC Partnership (ProjectCo) at A (low) with Stable trends. The credit rating confirmations are supported by ProjectCo's satisfactory operational performance and stable financial outlook.

ProjectCo is a special-purpose vehicle created to design, build, finance, and maintain the Phase One Civic Operations Centre (the Project), mainly consisting of a Transit Operations Facility and a Snow Management Facility, under a 27-year project agreement (PA) with the City of Saskatoon (the City).

KEY CREDIT RATING CONSIDERATIONS
The credit ratings are underpinned by the satisfactory performance and the relatively straightforward tasks during the service phase. ProjectCo dropped down on a back-to-back basis, all service risks and responsibilities to EQUANS Services Inc. (EQUANS Services or the Service Provider; formerly ENGIE Services Inc.) over the entire service phase through a fixed-price Service Contract. The Service Provider's performance is supported by a parent company guarantee from EQUANS US Inc. (formerly ENGIE Energy Services SA).

Total deductions during the 12-month period ended September 2024 were minimal and fully passed down to EQUANS Services. The Project's operating performance has been relatively stable and total deductions incurred to date have remained well below various thresholds under the PA or the Service Contract. In 2023, ProjectCo performed better than targets in terms of energy consumptions. According to Energy Analysis Report, ProjectCo had a net energy consumption gainshare of $46,481 in 2023, driven by lower electricity and natural gas consumption. It has been accepted by the City and passed down to the Service Provider. In addition, ProjectCo indicated that the working relationship with the Service Provider and the City has been healthy and collaborative.

CREDIT RATING DRIVERS
Given the fixed nature of the availability-based cost and revenue structure as well as the potential risk of major findings through the major maintenance and rehabilitation testing (first one to occur in operation year 11 (2027)), Morningstar DBRS considers a positive credit rating action unlikely in the near term. Negative credit rating pressure could result from a material deterioration of the operating and financial performance of the Project.

FINANCIAL OUTLOOK
The debt service coverage ratio (DSCR) for the 12 months ended September 2024 was 1.17 times (x), which was slightly higher than the projected DSCR of 1.15x, mainly because of higher interest rate and minor time difference of cash flows. For the next 12 months ended September 2025, the DSCR is expected to be 1.15x.

The forecast minimum DSCR of 1.15x and equity lock-up DSCR of 1.12x are lower than typically seen for availability-based public-private partnership (PPP) projects in the "A" credit rating range; however, the operating and maintenance resilience of 53.3% and lifecycle resilience of 46.9% are supportive of the credit rating and reflective of a fairly simple suite of services to be provided.

CREDIT RATING RATIONALE
The credit ratings reflect the Project's financial outlook, underpinned by reasonably straightforward operations, maintenance, and rehabilitation tasks during the service phase. The challenge includes potential unforeseen costs at handback.

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 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.

RATING DRIVER AND FINANCIAL RISK ASSESSMENT (FRA)
(A) Weighting of Rating Driver Factors
In the analysis of the Issuer, the relative weighting of the Rating Driver factors listed in the methodology (Part One - Rating
Availability-Based PPPs) was approximately equal.

(B) Weighting of FRA Factors
In the analysis of the Issuer, the following FRA factor listed in the methodology was considered more important: O&M/Lifecycle Break- Even Ratios.

(C) Weighting of the BRA and the FRA
In the analysis of the Issuer, the FRA carries greater weight than the BRA.

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

Morningstar DBRS applied the following principal methodology:

Global Methodology for Rating Public-Private Partnerships (August 13, 2024) https://dbrs.morningstar.com/research/437820

Morningstar DBRS credit ratings may use one or more sections of the Morningstar DBRS Global Corporate Criteria (April 15, 2024; https://dbrs.morningstar.com/research/431186), which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.

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 https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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