DBRS Confirms Ratings of New Brunswick (F-M) Project Company Inc.

DBRS has today confirmed the rating on the Highway Bonds of New Brunswick (F-M) Project Company Inc. (the Company) at A (high) and the ratings of Tranche A and Tranche B of the Senior Toll-Based Debt at “A”. All trends are Stable.

The rating of the Highway Bonds is a flow-through of the long-term rating of the Province of New Brunswick (the Province), which DBRS confirmed at A (high) with a Stable trend on June 5, 2012. Principal and interest payments of the Highway Bonds are serviced by an absolute assignment of a portion of the sublease payments of New Brunswick Highway Corporation (NBHC), a provincial Crown corporation. As of June 30, 2012, $601.8 million of Highway Bonds remained outstanding. The Highway Bonds are fully amortizing and will mature November 30, 2027.

The rating assigned to the Senior Toll-Based Debt reflects the business fundamentals of the Highway, supported by sound historical traffic growth and inflation-linked shadow tolls, which have generated debt service coverage levels well above those expected at the time of the debt issuance. The Senior-Toll Based Debt also has an absolute assignment of a portion of the sublease payments, but in contrast to the Highway Bonds, payments from NBHC are volume-dependent, reflected in the one-notch difference between the Highway Bonds and Senior Toll-Base Debt. In 2011, traffic declined by 1.4% as passenger vehicle traffic fell by 1.8%, while growth in large vehicles declined by 0.2%.

However, in accordance with the annual calculation contained in the concession agreement, toll rates increased by 3.5%, effective November 2011, which counteracted the lower traffic and led to a slight increase in revenues for the year.

For the first eight months of 2012, traffic has rebounded from levels seen in 2011 and is up 1.5%, led by large vehicle growth of 1.6%. Combined with the toll increase of 3.5%, this has led to a debt service coverage ratio (DSCR) of about 2.9 times, which remains strong for the rating. Consensus forecasts for New Brunswick are for continued modest GDP growth, which DBRS expects to translate into slight increases in usage of the Highway.

The asset continues to perform well. Maintenance capital needs are anticipated to form the majority of capital expenditures and by the end of 2012, Maritime Road Development Corporation anticipates that it will have repaved 11 lane-kilometres of the Highway and anticipates repaving an additional 40 to 50 lane-kilometres in 2013-2014.

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.