DBRS Confirms Teranet Inc. at “A”

DBRS has today confirmed the rating on the Senior Secured Bonds of Teranet Inc. (Teranet or the Company) at “A” with a Stable trend. The rating continues to reflect the Company’s protected exclusivity over the management and operation of the Ontario land registry and writs systems until March 2017, as well as sound management and solid financial profile maintained over the past year, including high profitability and interest coverage.

DBRS expects the impact on the Company’s operating flexibility of the proposed tax changes announced last fall by the federal government for income trusts to be manageable, largely mitigated by growing automated parcels and business volumes. Nevertheless, the proposal has added an element of uncertainty in the longer-term outlook, as it will force the Company to re-assess its corporate structure.

Performance has remained solid since the conversion of its parent into an income fund in June 2006, with growing business volumes and tight spending control lending strong support to EBITDA and interest coverage. Due to rising interest rates and slowing refinancing activity, however, registrations have showed signs of weakness in recent months, suggesting that operating conditions may have peaked. For the first half of 2007, Teranet saw search volumes grow 3.4% while registrations have edged down by 2.1% which, along with cost containment initiatives, helped boost EBITDA by 12.3% over the same period last year. 310,115 more parcels were automated, pushing the total count to 5.0 million or 92.1% of the Province’s estimated base.

With no new debt assumed since the $100 million pay-down and the refinancing of remaining debt at lower rates last fall, gross interest coverage jumped to a very solid 7.8 times for the six-month period, highlighting the considerable financial flexibility enjoyed by the Company.

While Teranet is set to have another strong year in 2007, expected slowdowns in the housing market and in refinancing activity in 2008 point to notably weaker revenue growth. The nearly one million parcels left to automate by 2012, new service offerings and a sustained focus on cost containment should help keep the Company in a sound operating position.

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