DBRS Confirms ITS SCOC Partnership at A (low), Stable Trend

DBRS Limited (DBRS) has today confirmed the rating of A (low) with a Stable trend on the $29.4 million Senior Short Term Bonds and $104.8 million Senior Long Term Bonds of Integrated Team Solutions SCOC Partnership (ProjectCo), the special-purpose entity created to design, build, finance and maintain the Phase One Civic Operations Centre (the Project) under a 27-year project agreement (PA) with the City of Saskatoon (the City).

The rating is underpinned by the low-complexity of the project, the creditworthiness of the construction contractor and a suitable construction security package. ProjectCo dropped down (on a back-to-back basis) all the design, construction and commissioning obligations under the PA to EllisDon Design Build Inc. (the Construction Contractor) through a fixed-price date- certain Construction Contract.

Construction generally progressed well during 2015. The excavation and foundation works for the Transit Operation Facility were completed on time. The exterior sheathing and panel installation is approaching completion and building enclosure was effectively achieved, allowing interior works to be carried out during the winter season. Although some delays were reported with respect to the steel structure and decking works, these works are now completed and the affected slab pouring works are essentially back on schedule. Full building permit was received on September 30, 2015. The concrete work for the snow pad was also completed on time. Measured by the reported value, by the end of October 2015 the progress was ahead of plan by approximately 21%, although we note that the Technical Advisor (TA) was only required to verify the payments up to the maximum payment curve that was contained in the original financial model. No disputes or relief events have been reported to date. The TA is of the opinion that the Project is still on target for the scheduled substantial completion date of December 31, 2016, and the funds available for the remaining works are sufficient to complete the Project. ProjectCo expects to mobilize the service provider by mid-2016.

The service phase will start upon the achievement of substantial completion and the City shall make performance-based availability payments to ProjectCo until the PA expiry date, December 31, 2041. All service risks and responsibilities are passed down on a back-to-back basis to Cofely Services Inc., over the entire service phase through a fixed-price Service Contract, supported by a parent company guarantee from GDF Suez Energy Services S.A.

The City shall make a lump sum payment of $38.6 million at substantial completion, part of which will be used to fully redeem the Senior Short Term Bonds. The Senior Long Term Bonds will be repaid quarterly during the service phase. The minimum debt service coverage ratio of 1.15 times and equity lock-up DSCR of 1.12 times are lower than typically seen for availability-based public-private partnership projects in the “A” range. However, the operating and maintenance resilience of 53.3% and Lifecycle resilience of 46.9% are supportive of the rating.

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.

The full report providing additional analytical detail is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.