DBRS Rates 407 International Inc. Debt Issue “A,” Stable

DBRS Limited (DBRS) has today assigned a rating of “A” to the $500 million Series 15-A2 senior notes issue (the Notes) of 407 International Inc. (407 or the Company). The Notes have been issued from 407’s March 18, 2015, shelf prospectus.

The intended use of proceeds from the Notes will be: (i) to partially repay upon maturity the Company’s CAD 500,000,000 3.88% senior secured medium-term notes, Series 10-A1 due June 16, 2015; (ii) to fund the Series Reserve Account in the Debt Service Reserve Fund (as both terms are defined in the indenture) in respect of the Notes; and (iii) for general corporate purposes.

The financing is consistent with DBRS’s expectations incorporated in the August 25, 2014, confirmation of 407’s ratings.

The Series 15-A2 Notes have a maturity date of May 11, 2046. The series rank pari passu with all other senior obligations of the Company. As a result, the rating is consistent with the ratings previously assigned by DBRS to the Company’s similarly ranked bonds outstanding.

During Q1 2015, vehicle kilometres traveled grew by 2.4%, while average workday trips were up 1.6% as compared to the same period in 2014, which the Company attributed to higher levels of discretionary travel, congestion on alternate routes and favourable weather conditions. Combined with toll increases implemented in February 2015 and contract revenues attributable to the 407 eastern extension, revenues grew by a healthy 15.5%. Operating expenses for the quarter were up 18.6% as compared to 2014, reflective of higher consulting expenses and expenses associated with the 407 extension. Notwithstanding, quarterly EBITDA increased 14.8% as compared to Q1 2014, translating to senior and junior interest coverage of 2.8x, and a senior DSCR with implied amortization was 2.2x. DBRS notes that interest charges were lower as a result of a drop in inflation, which led to a recovery on the real return bonds.

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

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

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

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

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