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 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 with Ontario Infrastructure and Lands Corp. (OILC, formerly known as Infrastructure Ontario).

The Construction Contractor, Carillion Construction Inc. (responsible for performing all of ProjectCo’s material construction obligations), is reporting an 11-week delay relative to the original construction schedule. Three of the 11 weeks are expected to be recoverable between now and the originally scheduled completion date, and as a result the Construction Contractor and the Lender’s Technical Advisor (TA) are projecting a substantial completion date of March 28, 2013, eight weeks behind the original target substantial completion date. The erosion in the schedule reflects mainly the late completion of early works, challenging weather conditions and the delayed receipt of equipment-related variations impacting the floor plan.

A revised schedule has been submitted to OILC and negotiations to compensate/provide relief to ProjectCo are ongoing. The Construction Contractor expects a final agreement to be reached during the fourth quarter of 2012. The TA believes that the revised construction plan to recover three weeks is reasonable, and has conveyed that there is no material risk of further delays as substantially all of the remaining construction activities, aside from some mechanical and electrical work, are limited to interior finishing work. Additional staffing resources have been added to ensure the completion of the remaining work in an expedited fashion.

Under the contractual framework, ProjectCo has passed down all of its construction obligations and risks to the Construction Contractor, and any delay should be the responsibility of either OILC or the Construction Contractor. DBRS believes that there is sufficient mitigating liquidity in the existing structure, which includes a 10% letter of credit from the Construction Contractor that is large enough to cover 18 months of liquidated damages. DBRS warns, however, that if a mutually agreed resolution between Project Co, the Construction Contractor and OILC is not reached, or if delays in reaching an agreement persist, it could impact the relationship between ProjectCo and OILC going forward.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodology is Rating Canadian Public-Private Partnerships (December 2011), which can be found on our website under Methodologies.