DBRS Rates 407 International Inc. Senior Debt Issue at “A” and Subordinated Debt Issue at BBB

DBRS has today assigned ratings of “A” to the $400 million Senior Notes issue (Series 10-A3) and BBB to the $300 million Subordinated Notes issue (Series 10-D1; together, the Notes) of 407 International Inc. (407 or the Company). The ratings are consistent with those previously assigned by DBRS to similarly ranked debt of 407.

The Notes are being issued under 407’s November 18, 2009 Shelf Prospectus (the Prospectus), which was subsequently amended on June 8, 2010. The effect of this amendment is that holders of new notes to be issued under the Prospectus will not have the benefit of the rating affirmation test described in clause (c) of the first paragraph of the “Capital Markets Platform – Additional Indebtedness Covenant” section of the Prospectus unless specifically provided for in the Pricing Supplement relating to those notes. DBRS previously stated that the June 2010 amendment has no impact on the credit ratings or trends assigned to 407 as it does not in and of itself affect the business fundamentals, and/or financial profile of the Company. (Please refer to separate DBRS press release dated June 10, 2010, for a more detailed commentary on 407’s amendment to its shelf prospectus.)

The intended use of proceeds from the Notes will be (i) to repay the Company’s $250 million, 4.50% Senior Notes, Series 08-A1, maturing on January 25, 2011, and its $300 million, 5.00% Subordinated Notes, Series 08-D1, maturing on January 31, 2011; (ii) to form a reserve for new senior debt; and (iii) for general corporate purposes.

The new issues and subsequent debt repayment will result in a $150 million net increase in total debt (3% of the Company’s total debt burden), which is consistent with expectations incorporated in DBRS’s March 16, 2010 ratings confirmation of 407. DBRS notes that 407 has displayed strong results for the nine-month period ending September 30, 2010. Traffic as measured by billed vehicle kilometres travelled has increased 5.6% year-over-year (yoy), while revenue and EBITDA have increased 11.4% and 13.4% yoy, respectively. Although the pace of growth in earnings may moderate somewhat going forward, operating performance should continue to result in coverage and leverage metrics that soundly support the Company’s current ratings.

The Senior Notes will be offered in a ten-and-a-half-year tranche and will rank pari passu with all other senior obligations of the Company, and the Subordinated Notes will be offered in a seven-year tranche and will rank pari passu with all other subordinated obligations of the Company.

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.