DBRS Confirms Halifax-Dartmouth Bridge Commission at AA(low)

DBRS has today confirmed the Toll Revenue Debt of Halifax-Dartmouth Bridge Commission (the Commission or HDBC) at AA (low), with a Stable trend. HDBC continues to exhibit sound credit fundamentals after another year of strong financial results. Moreover, resilient traffic, low tolls and prudent management should support healthy results in the coming years while the Commission engages in heavier-than-normal capital spending.

HDBC’s performance was solid for the year ended March 31, 2010, with net income of $6.4 million (+1.3% yoy). Traffic flow and toll revenue increased nicely, by 3.64% and 3.78% yoy, respectively, as the economy began to recover. As such, EBITDA increased to $15.7 million in F2010 from $14.6 million in F2009. Since the year ending March 31, 2010, HDBC has continued to perform soundly and in line with expectations, with year-to-date traffic flow slightly higher. The Commission’s financial position remains solid, with debt of $54 million at March 31, 2010, down $3 million over the previous year. The lower interest expense in F2010 improved the gross interest coverage ratio to 5.5 times from 4.8 times, significantly in excess of the levels required by the loan covenants.

Going forward, the Commission’s results should remain healthy as traffic growth resumes at a more normal, modest pace with a stabilizing economy. Capital expenditure is expected to average approximately $12 million per annum over the next four years. As such, the debt balance should continue on a slow downward trend until the next major capital project, which will likely be the re-decking of the Macdonald Bridge. This project is anticipated to take place in four or five years at a cost of roughly $140 million. Although the refurbishment of the Macdonald Bridge would lead to a markedly higher debt level, it is expected to be manageable within HDBC’s current rating.

DBRS notes that on July 5, 2010, HDBC applied to the Nova Scotia Utility and Review Board for a toll increase that would raise the base automobile cash fare from 75 cents to one dollar. If approved, the increase to the toll would be effective in early 2011. Over the longer term, the possibility of a third harbour crossing maintains an element of uncertainty in the outlook and has the potential to lead to substantial debt-financing needs for the Commission if public authorities support the project. Nevertheless, the process is still at a very early stage and the project may never fully materialize.

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