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

DBRS Limited (DBRS) has today confirmed the rating of A (low) with a Stable trend on the Senior Secured Debt of Accès Recherche Montréal L.P. (ProjectCo). ProjectCo is the special-purpose vehicle (SPV) created by Axium Recherche L.P. and Meridiam Infrastructure (SCA) SICAR to design, build, finance and maintain a new 68,431-square-metre research centre (the Project) under a 33.3-year public-private partnership (PPP) with the Centre Hospitalier de l’Université de Montréal (the Hospital), one of Québec’s largest health-care institutions.

On September 30, 2013, the Project achieved Substantial Completion as scheduled. Minor deficiencies were identified when Substantial Completion was awarded. Since that time, all minor deficiencies have been corrected, and the team is preparing an application for Final Completion of the Project. ProjectCo plans to submit the application in November 2015, and does not anticipate any difficulties in achieving Final Completion.

Substantial Completion of the facilities in 2013 marked the beginning of the 30-year service phase, during which Honeywell Limited (the Service Provider; a subsidiary of Honeywell International Inc., rated “A” with a Stable trend by DBRS) performs all facilities management services, including lifecycle, on behalf of ProjectCo. The project is now 12 months into its second year of service. There have been nominal service payment deductions that were passed down to the Service Provider on a back-to-back basis. The minor failures were largely attributed to an elevator unavailability event, help desk calls being unanswered within the required timeframes and occupants being unhappy with room temperature levels; however, DBRS notes that these issues have since been addressed, and the facility is believed to be operating smoothly. The transition to the service phase has gone well, and both the Service Provider and the Hospital have demonstrated good cooperation during the process.

ProjectCo was able to realize a higher historic debt service coverage ratio (DSCR) of 1.56 times as a result of SPV cost savings mainly from personnel management and insurance costs, among other items. Going forward, financial projections for the service phase remain unchanged, with projected debt-to-cash flow available for debt servicing (CFADS) of 8.6 times by the end of the third year of service and a DSCR of 1.37 times over the term of the service phase. The projected DSCR is somewhat higher than most other Canadian bond-financed PPPs in recent years. Debt-to-CFADS is also better than recent PPPs, and although it is high relative to corporate credits, it will slowly decline with the amortization of the bonds. While the financial metrics strongly support the rating, the Project remains exposed to adverse shocks such as the replacement of the Service Provider at a significant premium.

Notes:
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.

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

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