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. Consistent with economic conditions, traffic growth is losing momentum, although rising tolls are providing solid support to results and keeping the coverage ratio at a robust level. A relatively low debt burden also underpins the Commission’s solid credit profile, although major work on the Angus L. Macdonald Bridge (the Macdonald Bridge) starting in 2015 will increase debt markedly.

Despite soft economic conditions, traffic on the bridges rose by 1.0% in fiscal year 2011-12 (F2012), in line with expectations. A transit strike in the fourth quarter was responsible for the modest gains, as volumes in the first three quarters were fairly stable. Revenue and EBITDA still grew by 18.7% and 27.3%, respectively, driven by the first toll increase in 20 years, implemented on April 1, 2011. This in turn helped boost interest coverage to an all-time high of 8.1 times.

For F2013, the Commission prudently anticipates stable traffic levels, owing to soft economic conditions and high fuel prices. Performance to date has been in line with expectations, although the second phase of the planned toll increase is still expected to strongly boost revenues. However, expenditures are projected to rebound markedly due to the operation of a new command and control system and bridge maintenance projects, holding EBITDA fairly stable in F2013. DBRS believes the outlook for traffic will remain subject to downside risk over the next year or two, although the $25 billion federal shipbuilding contract recently awarded to the Halifax shipyard is likely to stimulate the local economy and traffic starting in 2014.

The debt outlook remains dependent on the replacement of the suspended spans on the Macdonald Bridge, which is scheduled for 2015. Operating cash flows will cover a material potion of the costs but debt is expected to finance the majority of the work, with potential borrowing needs estimated at $155 million. Provided spending discipline remains and traffic continues to show resilience, the resulting debt burden is expected by DBRS to remain manageable for the rating, with interest coverage likely to drop to approximately 2.0 times in the absence of further toll increases.

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.