Morningstar DBRS Confirms Plenary Properties LTAP LP's Issuer Rating and Long-Term Senior Bonds at "A" With Stable Trends

DBRS Limited (Morningstar DBRS) confirmed Plenary Properties LTAP LP's (ProjectCo or the Issuer) Issuer Rating and its credit rating on ProjectCo's Long-Term Senior Bonds at "A" with Stable trends. ProjectCo is the special-purpose entity created by Plenary Canadian Holdings Inc. to design, build, finance, maintain, and provide IT and lifecycle services to the Communications Security Establishment (CSE) Long-Term Accommodation Project (LTAP). The project is governed by a 33.5-year Project Agreement (PA) signed between ProjectCo and the Government of Canada (rated AAA with a Stable trend) as represented by Defence Construction Canada (1951) Ltd. The office and special-purpose building of approximately 893,000 square feet are located in Ottawa and consolidate all services previously provided through four separate facilities by CSE, Canada's foreign intelligence and national cryptologic agency.

The project is in the 11th year of its 30-year service phase, after having reached substantial completion on July 31, 2014. Honeywell Limited (Honeywell or the Facilities Management (FM) Service Provider), with a parent guarantee from Honeywell International Inc. (rated "A," Under Review with Negative Implications), performs all FM services and lifecycle services on behalf of ProjectCo to return the facility to a state of good repair upon the PA's expiry. ProjectCo's obligations related to IT support, including associated maintenance and lifecycle services, are passed down on a back-to-back basis to DXC Technology Canada Co. (the IT Service Provider; previously ESIT Canada Enterprise Services Co.), with a parent guarantee from DXC Technology Company (which Morningstar DBRS considers to be investment grade).

KEY CREDIT RATING CONSIDERATIONS
The project's operating performance in 2024 was good, with total reported deductions remaining low compared with the previous year. Although ProjectCo experienced elevated deductions related to security and IT services in certain months, which exceeded the monitoring warning threshold, no formal monitoring warning notices were issued by CSE. According to ProjectCo, the higher security deductions were due to CSE's interpretation of key performance indicators related to staffing for the service. Following amicable discussions, CSE has indicated its intention to reimburse the deduction amounts that were levied. ProjectCo and CSE continue to work together to enhance staffing at the site, acknowledging that the lengthy security clearance process poses a challenge to timely deployment. The major deductions related to IT services were the result of a combination of failures by both CSE and the IT Service Provider during a system update. All deductions reported throughout the year were fully passed down to the respective IT and FM service providers.

The second benchmarking exercise for IT and security services, which began in November 2021, is still in progress and is expected to be completed later this year. The second benchmarking exercise for FM services was completed earlier this year and resulted in an approximately $1 million increase compared with the original contract signed in 2010. In addition, the independent inspector's lifecycle and operating and maintenance (O&M) inspection is ongoing, as required under the PA, and is expected to be completed later this year.

The dispute regarding car parking payments reported last year has been resolved in favour of ProjectCo, confirming the entitlement of 28 complimentary parking spaces. There is an ongoing dispute related to the payment schedule for lifecycle on change orders, and Honeywell has issued a Notice of Request to Arbitrate. ProjectCo is currently engaged in discussions with CSE to seek an amicable resolution. Morningstar DBRS does not foresee any material impact on the project's performance even if the outcome is not in ProjectCo's favour. The relationship between the parties is otherwise collaborative, with no other material issues reported.

CREDIT RATING DRIVERS
Morningstar DBRS could take a negative credit rating action if the project's operating performance deteriorates materially, leading to an accumulation of failure points that could potentially trigger various contractual default thresholds or a replacement of the Service Provider. Because of the fixed-price service contract, there is limited upside on the project's financial metrics that could support a positive credit rating action, which is unlikely in the near future.

FINANCIAL OUTLOOK
The project's debt service coverage ratio (DSCR) for the 12-month period ended January 31, 2025, was 1.39 times (x), which was higher than the projected DSCR of 1.23x mainly because of higher interest income, special-purpose vehicle cost savings, and additional revenue realized from projects outside the PA's scope. For the next 12 months, Morningstar DBRS expects the DSCR to be 1.41x. O&M and lifecycle resiliencies remain above 60%, in line with the financial-close financial model.

CREDIT RATING RATIONALE
The credit ratings are supported by strengths that include (1) strong FM and IT contractors, and (2) a tight lifecycle inspection and reserving mechanism. The challenges include (1) extensive security requirements considering the project's nature, and (2) contractor replacement risk.

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) at https://dbrs.morningstar.com/research/437781.

CREDIT RATING DRIVER AND FINANCIAL RISK ASSESSMENT (FRA)
(A) Weighting of Rating Driver Factors
In the analysis of the Issuer, the relative weighting of the Credit Rating Driver factors listed in the Global Methodology for Rating Public-Private Partnerships (Part One¿Rating Availability-Based PPPs) was approximately equal.

(B) Weighting of FRA Factors
In the analysis of the Issuer, the following FRA factor was considered more important: O&M/Lifecycle Breakeven Ratios.

(C) Weighting of the Credit Rating Driver and the FRA
In the analysis of the Issuer, the FRA carries greater weight than the Credit Rating Drivers.

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 (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 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.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website (https://dbrs.morningstar.com/understanding-ratings).

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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