DBRS Downgrades 407 East Development Group to BBB, Negative Trend

DBRS Limited (DBRS) has today downgraded the ratings of the Short-Term Senior Bonds and Long-Term Senior Bonds of 407 East Development Group (ProjectCo) to BBB. The trend remains Negative. The downgrade is precipitated by the Ontario Government’s recent announcement that no payments will be made to the consortium until the road is open.

Mainly because of the slower-than-expected pace of construction, DBRS downgraded the rating to BBB (high) with a Negative trend on April 10, 2015, from A (low) with a Negative trend. Recognizing that ProjectCo was in discussion with the Province of Ontario (the Province) regarding revisions to the project agreement to meet the target substantial completion date, DBRS published a commentary on November 23, 2015, indicating that if ProjectCo is unable to reach an agreement with the Province to achieve substantial completion on time, additional negative rating action may result.

As noted in recent media reports, the Ontario Minister of Transportation stated that the 407 extension will not open to traffic until the spring of 2016 and said that the government will not make any payments to ProjectCo until it is open to the public. ProjectCo notes that its discussions with the Province are ongoing, although it does not anticipate that an agreement to achieve substantial completion on December 18, 2015, will be completed.

DBRS notes that further negative rating action may result should it become apparent that further material delays have accumulated or if, prior to substantial completion being achieved, the design-build longstop date of June 18, 2016, appears to be unattainable.

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.