DBRS Confirms CSS (FSCC) Partnership at A (low)

DBRS has today confirmed the rating of A (low) with a Stable trend on the $190 million senior secured bond issue (Bonds) of CSS (FSCC) Partnership (ProjectCo). ProjectCo is the special-purpose entity created to design, build, finance and maintain a new, 650,000 square foot Forensics Services and Coroner’s Complex (the Project) under a 32.5-year public-private partnership (PPP) with Ontario Infrastructure and Lands Corp. (OILC, formerly known as Infrastructure Ontario (IO)).

The rating incorporates the 37-day delay accumulated relative to original benchmarks although according to the Lenders’ Technical Advisor (TA) and the Construction Contractor (which will perform all of ProjectCo’s material construction obligations), the decision to re-sequence activities and the use of overtime will enable the Project to be delivered on the original target substantial completion date of January 31, 2013. As measured by its revised schedule, the Construction Contractor has indicated that it is approximately nine days behind plan. The delays result mainly from the late removal of an existing storm water manhole, reconfiguration of the remaining storm sewer pipe at the north end of the site and challenging weather conditions. The storm sewer pipe was to have been removed by OILC prior to turning the site over to ProjectCo, although this work was not completed in a timely fashion. ProjectCo has submitted a Variation, currently under consideration by OILC, which outlines the direct costs attributable to the storm sewer removal and timing implications arising from the schedule re-sequencing. In addition, the Project has lost some time to weather-related delays as a result of a wetter-than-normal spring.

Despite these challenges, the Construction Contractor has been fairly proactive and work is now progressing well and is free from any quality issues. The storm sewer was eventually removed by the Construction Contractor several weeks after financial close so as to avoid further delays. In the interim, the Construction Contractor was unable to begin excavation work on the north end of the site as originally planned and instead began excavating at the site’s south end and the bulk of the excavation work has now been completed. Prudent use of overtime and weekend work has allowed the Construction Contractor to partially catch up and mechanical and electrical (M&E) and drywall work has been commenced earlier than originally planned. The Construction Contractor anticipates that it will be able to achieve the key milestones of building enclosure and power on as per the original schedule, in February and April 2012, respectively. Mechanical and electrical trades are fully contracted and approximately 75% of all contracts have been let, with the balance of uncontracted work representing finishes and interior work.

Upon completion of the 2.5-year construction phase, the 30-year service phase will commence, entailing routine maintenance of the facility and its electromechanical equipment, as well as management of energy consumption and lifecycle maintenance in order to return the facility to OILC in a state of good repair upon expiry of the Project Agreement (PA). The financial projections for the service phase remain consistent with the financial model, and adequate for the rating.

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.