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. Despite softening traffic conditions, the Commission remains on a solid footing, helped by prudent expenditure management, forward-looking planning and a proactive approach to infrastructure maintenance. Furthermore, financial metrics remain sound and while major work on the Angus L. Macdonald Bridge (the Macdonald Bridge) in 2015 is likely to increase debt notably, a first toll increase since 1992 for passenger and for commercial vehicles should help beef up interest coverage in advance of the new borrowing.

Moderate economic growth in the region and sustained spending discipline led to another sound performance in F2011, as EBITDA rose 2.2% to $16 million. Up a modest 0.3% year over year, traffic was back to a more typical growth trend after the sharp post-recession rebound posted the prior year. The long-term loan from the Province of Nova Scotia continued to amortize, while sound operating results contributed to solid gross interest coverage of 5.7 times. All reserves required under the provincial loan agreement remain fully funded.

The Commission continues to anticipate annual traffic growth of 0.5% to 1.0%, although DBRS expects the slowing economic momentum observed globally to dampen traffic conditions well into the next fiscal year. Traffic was little changed for the first five months of the fiscal year to August 2011. Nevertheless, the toll increase for passenger vehicles of $0.25 per crossing for cash customers and $0.10 for MACPASS users effective April 1, 2011, as well as increases of $0.34 per axle for commercial vehicles and $0.29 per axle for commercial MACPASS users will drive revenue and EBITDA up markedly. Toll increases of similar magnitude for MACPASS users, are also planned for next year, providing protection against potentially weak traffic growth. The debt outlook remains unchanged and points to continued slow amortization of the long-term loan from the Province until the next major maintenance intervention, which entails the replacement of the suspended span on the Macdonald Bridge at a cost of approximately $200 million. While the higher tolls will help address a material potion of the costs, debt is expected to finance the majority of the project. Provided spending discipline is maintained and traffic remains resilient, the new debt should be manageable for the rating, with interest coverage likely to drop to about 2.0 times in the absence of further toll increases.

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.