DBRS Confirms New Brunswick (F-M) Project Company Inc.’s Highway Bonds at A (high) and Reinstates Senior Toll-Based Debt at A

DBRS has today confirmed the rating on the Highway Bonds of New Brunswick (F-M) Project Company Inc. (the Company) at A (high) and reinstated the “A” ratings of the Tranche A and Tranche B Senior Toll-Based Debt. All trends are Stable.

The rating on the Highway Bonds is a flow-through of the long-term rating of the Province of New Brunswick (the Province), which was confirmed at A (high) with a Stable trend on June 25, 2009, as the Highway Bonds are serviced by an absolute assignment of a portion of the sublease payments from the New Brunswick Highway Corporation (NBHC), a provincial Crown corporation. These payments are funded by a statutorily supported appropriation from the Province’s Consolidated Revenue Fund. While there is no explicit provincial guarantee, default risk due to NBHC not meeting its sublease commitments is extremely low based on its status as an agent of the Crown, its credibility to honour its commitments and the Province’s fiscal capacity.

The ratings of the Senior Toll-Based Debt reflect the business fundamentals of the Highway and are supported by ongoing modest traffic growth and rising inflation-linked shadow tolls, which have kept debt service coverage levels strong. Traffic declined marginally in 2008, by less than 0.1%, although increased shadow tolls, which are linked to the New Brunswick Consumer Price Index, led to Debt Service Coverage Ratio on the Senior Toll-Based Debt of 2.67 times, up slightly from 2007, despite increases in debt service requirements. For the first eight months of 2009, total traffic has increased by 3.3% as compared to the similar period in 2008, although commercial traffic has declined during this time frame.

Although debt servicing charges will rise in the years ahead, there is a significant cushion in case of weak traffic growth, with 2008 revenues sufficient to cover 1.79 times 2025 debt service. In addition, there is a reserve account held on behalf of the lenders sufficient to cover 12 months of Senior Toll-Based Debt service. As such, exceptionally large declines in traffic volume would be needed to pose a risk to Toll-Based Debt servicing needs.

Key risks to the Senior-Toll Based Debt rating include debt service requirements which increase over time, potential exposure to legislative changes which might change the toll structure or statutory appropriation of sublease payments, the ability of the Province to build a competing route and the requirement for the tolling stations to be accessible by traffic to generate revenues to service Toll-Based Debt.

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 Public Finance rating.