DBRS Confirms Plenary Justice Okanagan Limited Partnership at A (low), with a Stable Trend

DBRS Limited (DBRS) has today confirmed the rating of A (low) and Stable trend assigned to the $114.5 million Series A Senior Notes of Plenary Justice Okanagan LP (ProjectCo), the special-purpose entity created to design, build, finance and maintain the $185.5 million Okanagan Correctional Centre (the Project) under a 32.6-year Project Agreement signed between ProjectCo and the Province of British Columbia (the Province; rated AA (high) with a Stable trend). The rating confirmation reflects the fact that there are no material changes to the Project timeline, the sizable construction enhancement package, solid credit profile of the constructor, the relatively low complexity of the work, the fairly straightforward service obligations and the sound operating resiliencies.

The Lenders’ Technical Advisor (BTY Group; LTA) is of the opinion that the Project can be completed on time and on budget by PCL Constructors Westcoast, the Design-Build Contractor. As of the December 2015 report, the total cost to complete is now $62.9 million. The project is progressing fairly well, being 66.1% complete. There are some minor delays, but none of that work is on the critical path. The LTA is of the opinion that the September 30, 2016, Service Commencement Date is attainable at a total cost target of $185.5 million.

Upon completion of construction, Honeywell Limited (Canada) (the Service Provider) will provide facility management as well as lifecycle maintenance and utilities management services over the 30-year service phase of the project. The Service Provider will perform the majority of the facility’s maintenance and lifecycle work, while certain ancillary facility maintenance functions like waste management and grounds maintenance will be subcontracted to other specialized parties. ProjectCo only retains responsibility for general management, performance monitoring and the maintenance of certain insurances. Overall, the service specifications are viewed as standard for a correctional centre, with payment deductions generally expected to be modest over the life of the project.

Typical of public-private partnerships, leverage is relatively high with a gearing ratio of 90.5:9.5 at financial close. This is also reflected in the debt-to-cash flow available for debt service ratio of 13.3 times projected in the first year of operation, declining thereafter, and the debt service coverage ratio (DSCR) of 1.21 times foreseen over the project’s term. In addition, the break-even levels to achieve a DSCR of 1.0 times for re-pricing of facility management expenses (44%) and lifecycle costs (46%) are viewed as adequate by DBRS and are supported by a high-quality Service Provider.

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.