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

DBRS has today confirmed the Senior Secured Debt rating of Accès Recherche Montréal L.P. (ProjectCo) at A (low) with a Stable trend. ProjectCo is the special-purpose vehicle (SPV) 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.

The construction joint venture consisting of Pomerleau Inc. and Verreault Ltd. (the DBJV), two of Québec’s largest construction companies, is currently reporting a 25-day delay relative to the critical path schedule. As of May 2012, the overall progress of the project against the construction schedule stood at 61% versus a planned 64%. Delays continued since the last rating report as a result of a two-day province-wide Québec construction workers strike in October 2012, which imposed an overall consequential impact of eight days, as well as delays on various complex tasks causing the DBJV to extend the work into adverse winter conditions. The industry strike qualifies as a Relief Event under the Project Agreement (the PA), and ProjectCo, the DBJV and CHUM are currently finalizing negotiations on a compensation arrangement.

The DBJV plans to achieve the target substantial completion date of September 30, 2013, by maintaining acceleration efforts, which include work shifts at ten hours per day, six days per week, currently underway on electrical, mechanical, plumbing and fire protection activities and accelerating architectural works through the employment of additional resources as needed. The Lenders’ Technical Advisor (the TA) believes that substantial completion can be achieved by the originally targeted date if acceleration efforts are implemented within an appropriate time frame to allow for a six-month commissioning process. The delays will ultimately have some impact on budget, primarily arising from increased labour costs, but the impact is not expected to be material. Furthermore, any variations from budget will be absorbed by the DBJV, as opposed to ProjectCo, through the fixed-price Design-Build Agreement (DBA).

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 (Honeywell or the Service Provider) 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 will be limited.

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.