DBRS Confirms NorthwestConnect General Partnership

DBRS has today confirmed its rating of “A”, with a Stable trend, on the Senior Amortizing Bonds of NorthwestConnect General Partnership (ProjectCo), the special-purpose entity created to design, build, finance, operate and maintain the Northwest Anthony Henday Drive, 21 kilometres of divided highway comprising the northwest portion of the Edmonton Ring Road, under a 33.25 year agreement (the DBFO Agreement) with the Government of Alberta (the Province).

Construction began in the fall of 2008 and has advanced rapidly despite weather related issues in the spring. The project is approximately 47% complete and considered well ahead of schedule, with no anticipated issues with the targeted public opening date of November 1, 2011. This places construction progress far beyond the 30% completion milestone under the DBFO Agreement which was to be met by July 2010. The construction team is currently focussed on bridges (23% of the contract price) and earthworks (22% of the contract price), which comprise the largest portions of the project and have been relatively problem-free so far. Despite the usual uncertainties related to large construction projects, the development has advanced smoothly with no material scope changes and no major concerns raised by the Province which has assigned its own technical advisor (TA) to monitor any potential issues.

The opening of the highway in 2011 will trigger the start of operation and receipt of availability payments from the Province, rated AAA by DBRS. Financial projections for the operating phase remain unchanged, with the debt-to-capital ratio forecasted at a high 92% at the start of operations, and a somewhat limited EBITDA DSCR at around 1.15 times. However, the pass-down of operating and maintenance activities to a subcontractor and relatively low complexity of responsibilities, as well as the use of long-life pavement and a three-year look forward major maintenance reserve should help provide stable results. Additionally, a six-month debt service reserve as well as a 50% performance bond and a 50% labour and material bond posted by the Operator will provide a cushion against unforeseen events during this phase, especially for challenging life-cycle planning.

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

The applicable methodology is Rating Canadian Public-Private Partnerships, which can be found on our website under Methodologies.

This is a Corporate (Public Finance) rating