Morningstar DBRS Confirms TransLink at AA, R-1 (middle); Stable Trends

DBRS Limited (Morningstar DBRS) confirmed the Issuer Rating and Senior Unsecured Debt rating of South Coast British Columbia Transportation Authority (TransLink or the Authority) at AA and the rating on its Commercial Paper at R-1 (middle). All trends are Stable.

KEY CREDIT RATING CONSIDERATIONS
The credit ratings remain well supported by TransLink's strong legislative framework, its effective financial management framework and practices, diverse revenue base, and the strength of the underlying economy. The credit ratings remain constrained by the Authority's ongoing operating funding pressures and rising debt burden.

CREDIT RATING DRIVERS
While unlikely, Morningstar DBRS would upgrade TransLink's credit ratings if there were a material and sustained improvement in a combination of critical ratings factors and financial risk assessments. Morningstar DBRS could downgrade the Authority's ratings if operating results deteriorated significantly on a sustained basis and the debt burden rose materially above current projections.

CREDIT RATING RATIONALE
For the year ended December 31, 2024, TransLink reported a surplus of $300.6 million, compared with a surplus of $472.9 million the prior year. In prior years, TransLink received government relief funding to offset net operating losses between 2023 and 2025 caused by the pandemic. Morningstar DBRS adjusts TransLink's results in order to reflect the relief funding in the period in which it will be used. Accordingly, on a Morningstar DBRS-adjusted basis, this equates to a surplus of $463.0 million, versus a surplus of $73.3 million in 2023.

For 2025, TransLink budgeted a deficit of $72.0 million, which largely reflects modest growth in expenses and relatively flat revenue growth, as no additional senior government funding was expected, and a decline in fuel tax revenue offset growth in transit and taxation revenues and income from development cost charges. Ridership is expected to continue to grow in 2025 because of more traditional factors, such as employment levels and population growth now that post-pandemic travel patterns have begun to crystallize. In Q1 2025, TransLink recorded a deficit of $46.8 million, which was unfavourable to budget and can be attributed to changes in project schedules, which led to a combination of lower recognized revenue from senior government capital contributions, combined with lower development cost charges and fuel tax revenue.

The pandemic created permanent shifts in ridership behaviour given the resulting increase in remote and hybrid work, which affected transit-related revenues. Moreover, the increasing adoption of zero-emission and fuel-efficient vehicles has accelerated the decline of fuel-tax revenue. These two funding channels formed 39% of TransLink's adjusted revenue in 2024. Moreover, the inflationary environment has created additional cost pressures relating to labour, fuel, material, and construction costs. TransLink is working with its stakeholders to identify new revenue sources and cost containment strategies to mitigate these pressures.

In April 2025, TransLink's new 10-year Investment Plan was approved. This iteration focuses on reducing TransLink's structural deficit, addressing overcrowding and expanding services, and advancing key strategic priorities. The Plan will fully fund operations through 2027 and will cut the deficit by nearly half beginning in 2028. The Plan includes a one-time contribution by the Province of $312 million for the Authority's 2025 to 2027 operating years and also includes a commitment from the Province to introduce a new revenue source in 2028, subject to the approval of the Legislative Assembly.

Morningstar DBRS' measure of net tax-supported debt is forecast to rise to $4.5 billion (+9.3%) in 2025 before reaching $7.1 billion by 2027. This would equate to net tax-supported debt per capita of $2,174 or 0.41% of Metro Vancouver's taxable assessment. These levels remain consistent with the AA credit rating.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental, Social, or 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 (May 16, 2025) https://dbrs.morningstar.com/research/454196.

CRITICAL RATING FACTORS (CRF) AND FINANCIAL RISK ASSESSMENT (FRA)
(A) Weighting of CRF Factors
In the analysis of TransLink, the CRF factors are considered in the order of importance contemplated in the methodology.

(B) Weighting of FRA Factors
In the analysis of TransLink, the FRA factors are considered in the order of importance contemplated in the methodology.

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

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

Morningstar DBRS applied the following principal methodology: Rating Canadian Municipal Governments (April 25, 2025)
https://dbrs.morningstar.com/research/452565

The following methodologies have also been applied:

-- Morningstar DBRS Global Corporate Criteria (February 3, 2025)
https://dbrs.morningstar.com/research/447186
-- Morningstar DBRS Criteria: Approach to ESG Factors in Credit Ratings (May 16, 2025)
https://dbrs.morningstar.com/research/454196

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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