Morningstar DBRS Finalizes Provisional Credit Rating of B (high) With a Stable Trend on Top Aces Inc.'s Senior Unsecured Notes

DBRS Limited (Morningstar DBRS) finalized the provisional credit rating of B (high) with a Stable trend on Top Aces Inc's (Top Aces or the Company, rated BB (low) with a Stable trend) Senior Unsecured Notes (the Notes), which closed on March 13, 2025. The Recovery Rating on the Notes is RR5.

The credit rating on the Notes is applicable to the following series: CAD 200 million, 9.00% Senior Unsecured Notes due March 13, 2030. The net proceeds of the Notes, together with draws under the Company's new revolving credit facility, are intended to be used to repay existing indebtedness. The Notes will be unsecured obligations ranking equal with all existing and future unsecured indebtedness of Top Aces but will effectively be subordinated to any secured indebtedness of the Company, including the Company's revolving credit facility. 

CREDIT RATING DRIVERS
Morningstar DBRS could take a positive credit rating action should Top Aces materially strengthen its business risk profile, primarily through increasing its size and customer diversification, without necessarily requiring an improvement in key credit metrics to do so. Conversely, should key credit metrics materially deteriorate in aggregate for a sustained period (i.e., debt-to-EBITDA increase toward 4.5 times (x)) because of weaker-than-expected operating performance and/or more aggressive financial management), the credit ratings could be pressured. That said, weaker-than-expected operating performance for a sustained period, resulting in a more permanent shift in the Company's business risk profile, could also result in the requirement to maintain stronger credit metrics to support the same credit rating.

CREDIT RATING RATIONALE
Comprehensive Business Risk Assessment (CBRA): Top Ace's CBRA of BH reflects the Company's solid market position in its niche markets, contracted revenues streams, strong safety record, technological capabilities, and favorable industry tailwinds. The CBRA also reflects the considerable spending requirements related to fleet maintenance and contract growth, risks associated with customer concentration, as well as uncertainties around existing contract renewals and future contract growth.

Comprehensive Financial Risk Assessment (CFRA): Top Aces' CFRA of BBBL reflects the Company's relatively conservative financial management practices (i.e., debt-to-EBTIDA of approximately 3.25x in 2025).

Intrinsic Assessment (IA): The IA of BBL is within the Intrinsic Assessment Range and is based on the CBRA and CFRA, also taking into consideration peer comparisons, among other factors.

Additional Considerations: The credit ratings include no further negative or positive adjustments resulting from additional considerations.

Recovery Rating: The Recovery Rating of RR5 on the Senior Unsecured Notes assumes a fully drawn secured revolver and reflects the secured revolver's first-lien position.

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.

Further details on the Issuer's Intrinsic Assessment can be found at https://dbrs.morningstar.com/research/449317.

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

Morningstar DBRS applied the following principal methodology:
-- Global Methodology for Rating Companies in Services Industries (February 3, 2025) https://dbrs.morningstar.com/research/447184

Morningstar DBRS credit ratings may use of one or more sections of the Morningstar DBRS Global Corporate Criteria (February 3, 2025) https://dbrs.morningstar.com/research/447186 which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.

The following methodologies have 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
-- Morningstar DBRS Global Corporate Criteria (February 3, 2025) https://dbrs.morningstar.com/research/447186

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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