DBRS Confirms New Brunswick (F-M) Project Company Inc.’s Highway Bonds at A (high) and 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 the “A” ratings of the Tranche A and Tranche B Senior Toll-Based Debt. All trends are Stable.

The rating of the Highway Bonds is a flow-through of the long-term rating of the Province of New Brunswick (the Province). Principal and interest of the Highway Bonds are serviced by an absolute assignment of a portion of the sublease payments from New Brunswick Highway Corporation (NBHC), a provincial Crown corporation. As of June 30, 2010, $641.1 million of Highway Bonds remained outstanding. The Highway Bonds will mature on November 30, 2027.

The rating of the Senior Toll-Based Debt is reflective of the business fundamentals of the Highway, supported by good historic traffic growth and inflation-linked shadow tolls, which have led to debt service coverage levels well above those expected at the time of debt issuance. While the Senior Toll-Based Debt also has an absolute assignment of a portion of the sublease payments, in contrast to the Highway Bonds the payment of debt service on the Senior Toll-Based Debt is volume-dependent, reflected in the one notch of differentiation between the two at the present time. In 2009, total traffic grew 4.3% compared to 2008. Tolls increased by 2.3% in 2009 and led to a Debt Service Coverage Ratio (DSCR) on the Toll-Based Debt of 2.7 times, essentially flat compared to 2008, despite the increase in debt service requirements due to the accretive nature of the debt ..

Tolls are adjusted on the basis of the New Brunswick Consumer Price Index (NBCPI), which is the benchmark used under the concession agreement. For the first eight months of the year, traffic growth was 3.9% compared to the same period in 2009, leading to a healthy DSCR of 2.9 times. During this period, commercial traffic swung to growth of 4.9%, with personal/leisure travel moderating to 3.6% growth. Consensus forecasts are calling for modest GDP growth of 1.7% in 2010 and an increase of 2.7% in 2011, which should be supportive of continued moderate traffic growth.

Note:
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.