DBRS Confirms NorthwestConnect General Partnership at “A”

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

Construction continues at a steady pace although wet weather encountered so far this year has hindered progress on subgrade and paving work on the west half of the project, notably reducing the significant cushion accumulated by the design-build contractors at the time of the last rating review. Nevertheless, there remains some contingency in the schedule. The DB Contractors have added crews to make up for the delay and remain very confident that the targeted opening date of November 1, 2011 will be achieved. Based on the latest report of the technical advisor, about 80% of the project was completed by the end of September and work is currently focused on bridge deck pours as well as on subgrade and paving work to be done prior to this winter, with three non-critical deck pours expected to be delayed until next spring. Started in May, paving has ramped up markedly in an effort to make up for the slow spring and is expected to be 70% to 75% complete by winter. Change orders have so far been marginal and limited to temporary traffic signals.

The opening of the highway in 2011 will trigger the start of operation and receipt of availability payments from the Province. Financial projections for the operating phase remain in line with original expectations, with the debt-to-capital ratio forecasted at a high 92% at the start of operations, and a somewhat limited EBITDA debt service coverage ratio at around 1.15 times. However, the pass-down of operating and maintenance activities to a subcontractor, the relatively low complexity of responsibilities, as well as the use of long-life pavement and a three-year look-forward major maintenance reserve are expected to provide stability to 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.

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.