DBRS Confirms Accès Recherche Montréal L.P. at A (low)

DBRS has today confirmed the short-term and long-term Senior Secured Debt of Accès Recherche Montréal L.P. (ProjectCo) at A (low) with a Stable trend. ProjectCo is the special-purpose vehicle created by Fiera Axium Recherche L.P. and Meridiam Infrastructure (SCA) SICAR to design, build, finance and maintain a new 68,431 square metre research centre under a 33.3-year public-private partnership (PPP) with the Centre Hospitalier de l’Université de Montréal (CHUM or the Hospital), one of Québec’s largest health care institutions.

Construction began in May 2010, with the work undertaken by a 50/50 joint venture consisting of Pomerleau Inc. and Verreault Ltd. (the DBJV), two of Québec’s largest construction companies, under a fixed-price date-certain contract valued at $425 million. As of June 2011, the DBJV has used up six weeks of a nine-week schedule contingency. Delays are related to adverse site conditions that had an impact on the installation of retaining walls and significantly above-average precipitation throughout April and May, which hindered the pouring of concrete slabs. The Early Works portion of the project and underground work have been completed, and better weather conditions since the end of May 2011 have allowed concrete slab and form work to progress more quickly. The DBJV has developed a revised construction plan to recover the six-week buffer lost by delays, with acceleration efforts made possible through the introduction of extended working hours and improvements in the slab-pouring techniques employed by staff.

The expected substantial completion of this project is unchanged, at September 30, 2013. The Lenders’ Technical Advisor (the TA) has certified that the DBJV has completed a total of $88 million of construction work for the period ending May 31, 2011. The delays will ultimately have some impact on budget, primarily arising from increased labour costs as a result of the acceleration efforts, but the impact is not expected to be material. Furthermore, any variations from budget will be absorbed by the DBJV, which is locked into a fixed-price contract.

The completion of the 15-storey research and training facility, the six-storey administrative building and the bridge connecting the second floors of the two buildings in 2013 will mark the beginning of the 30-year operating phase, during which Honeywell Limited will perform all facilities management services, including lifecycle, on behalf of ProjectCo. Financial projections for the service phase remain unchanged, with projected debt-to-cash flow available for debt servicing (CFADS) of 8.8 times post-substantial completion and a debt service coverage ratio (DSCR) of 1.37 times over the term of the service phase. The projected DSCR is somewhat higher than most other Canadian “A”-range bond-financed PPPs in recent years, and debt-to-CFADS is also better than recent PPPs, although it is high relative to corporate credits, and will slowly decline on course with the amortization of the bonds. While the financial metrics strongly support the rating, resilience to adverse shocks such as the replacement of the DBJV or the Service Provider at a significant premium is limited. A six-month debt service reserve and the performance security provided by the Service Provider will afford a modest cushion against unforeseen events during the service phase.

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.