Morningstar DBRS Finalizes Provisional Credit Rating on Maritime Link Financing Trust's new Series B Bonds at AAA with a Stable Trend

DBRS Limited (Morningstar DBRS) finalized the provisional credit rating of AAA with a Stable trend to the $500 million Series B Bonds issued by Maritime Link Financing Trust's (the Issuer). The Issuer is a special-purpose funding trust established to initially facilitate the financing of the Maritime Link Transmission Project (the Transmission Project). The $500 million Series B Bonds are in addition to the $1,300 million Series A Bonds (rated AAA with a Stable trend by Morningstar DBRS). Like the Series A Bonds, the Series B Bonds are guaranteed by the Government of Canada (Canada or the Guarantor; rated AAA with a Stable trend by Morningstar DBRS). The terms of the Series B Bonds mirror those of the Series A Bonds, which will fully amortize to mature on December 1, 2052.

The Transmission Project is a 500-megawatt electric transmission line that transmits power generated by the Muskrat Falls hydro facility in Newfoundland and Labrador across the Cabot Strait to the Nova Scotia electric grid. Although the Transmission Project was completed on time on January 15, 2018, it was unable to transmit sufficient hydro power to Nova Scotia ratepayers until 2024 because of several years of construction delays at the Muskrat Falls hydro facility. To fund the replacement energy required in the interim and mitigate the adverse impact on ratepayers, Nova Scotia Power Inc. (Nova Scotia Power; rated BBB (high) with a Stable trend by Morningstar DBRS) has accumulated unrecovered fuel and purchased power balance (the FAM balance) of approximately $500 million.

In September 2024, Canada and the Province of Nova Scotia (rated A (high) with a Stable trend by Morningstar DBRS), along with NSP Maritime Link Inc., and Nova Scotia Power finalized an agreement for a $500 million federal loan guarantee (the FLG2). The Series B Bonds are issued based on the FLG2. Proceeds will be advanced to Nova Scotia Power and will be applied in full against the FAM balance. Canada provided the FLG2 to assist Nova Scotia ratepayers through more cost-effective, long-term financing of the FAM balance. The Nova Scotia Utility and Review Board granted the regulatory approval of this transaction.

KEY CREDIT RATING CONSIDERATIONS
The credit rating is based on the unconditional and irrevocable FLG2 provided by Canada. The terms of the FLG2 are virtually identical to the initial federal loan guarantee (FLG1) provided for the Series A Bonds. The sole event of default under the Indenture will be Canada's inability to make payment if demanded under its guaranteed obligations (FLG1 or FLG2). As a result, the credit ratings on both the Series A and Series B Bonds are a flow-through of Canada's credit rating. On September 6, 2024, Morningstar DBRS confirmed Canada's credit rating at AAA with a Stable trend.

CREDIT RATING DRIVERS
Morningstar DBRS expects the credit ratings on the Series A and Series B Bonds will move in lockstep with Canada's credit rating. Any positive or negative credit rating action taken on Canada will trigger the same credit rating action on both the Series A and Series B Bonds.

CREDIT RATING RATIONALE
Morningstar DBRS applied the Guarantees and Other Forms of Support section in the "Morningstar DBRS Global Corporate Criteria" to assign the credit ratings to both the Series A and Series B Bonds. Morningstar DBRS notes that both guarantees (FLG1 and FLG2) have met its criteria for the flow-through of Canada's credit rating to both bonds. Notably, (1) both guarantees constitute irrevocable, unconditional, absolute, and continuing obligations of Canada; (2) there is no requirement to exhaust recourse against the Issuer before pursuing payment from Canada under the guarantees; (3) all defences are waived by Canada and subrogation rights are postponed if the guaranteed obligations are still outstanding; (4) no amendment of either guarantee is permitted, except by agreement with the Indenture Trustee; and (5) termination of the guarantee and release of the Guarantor is permitted only when all obligations owing under the guarantees are fully repaid. Morningstar DBRS has received and reviewed a final legal opinion from counsel representing Canada that confirms the enforceability of FLG2.

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

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