DBRS Confirms CSS (FSCC) Partnership at A (low)

DBRS Limited (DBRS) has today confirmed the rating of A (low) with a Stable trend on the $190.3 million Senior Secured Bonds (the Bonds) of CSS (FSCC) Partnership (ProjectCo). ProjectCo is the special-purpose entity created to design, build, finance and maintain a new 665,000 (circa) square foot Forensics Services and Coroner’s Complex (the Project) under a 32.5-year public-private partnership (PPP) with Ontario Infrastructure and Lands Corporation (OILC, formerly known as Infrastructure Ontario). The achievement of Substantial Completion marked the commencement of the 30-year service phase, entailing routine maintenance of the facility and its electromechanical equipment, as well as management of energy consumption and lifecycle maintenance in order to return the facility to OILC in a state of good repair upon expiry of the Project Agreement (PA).

Substantial Completion was achieved on February 15, 2013, although OILC subsequently directed ProjectCo to modify some areas within the building to accommodate two new tenants, the Office of the Fire Marshal (OFM) and Emergency Management Ontario (EMO). In 2014, ProjectCo and OILC agreed to amend the PA in order to incorporate the tenant fit-out modifications that are currently underway. In DBRS’s view, there was no material change to the overall risk profile of the Project, as while the volume of services to be performed has increased marginally, monthly service payments have been adjusted accordingly, as was the functional area and unit weighting schedule of the payment mechanism.

ProjectCo expects to complete all variation-related construction activities and achieve Final Completion by the end of the year. This comes 35 months after achieving Substantial Completion. While it is unusual for Final Completion to be prolonged for such an extended amount of time, there were certain variations issued by OILC that prevented ProjectCo from achieving Final Completion sooner. There remains one outstanding variation which is considered minor in nature. ProjectCo estimates that by the end of the year all construction-related obligations will be complete. ProjectCo will return cash that was held from the Construction Contractor as liquid security, upon successful achievement of Final Completion.

The Project has been performing well with no major operating concerns. ProjectCo indicated the Carillion Services (FSCC) Inc. (the Service Provider) has been performing well.

Availability payments have been steady without any deductions incurred this year. There were a few minor quality and service failures related to plant services but they were insufficient to trigger any monetary deductions under the PA. ProjectCo indicated that the minor failures were isolated incidents and are not representative of the entire Project. DBRS does not expect any significant changes in operations of the facilities for the upcoming year and believes that the operations will continue in a good state given the downward trend in the number of failures.

ProjectCo indicated that the Service Provider and the Authority maintain a good working relationship and continue on a monthly basis to discuss operational issues. Project resiliencies remain at levels that are supportive of the rating, with operating and maintenance and lifecycle breakeven points at 46.7% and 45.2%, respectively. Furthermore, minimum/equity lock-up debt service coverage ratio projections of 1.25times/1.15 times are maintained. A six-month debt service reserve and the performance security provided by the Service Provider will afford a modest cushion against unforeseen events during the service phase.

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.

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.

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.