DBRS Finalizes Provisional Rating of A (low), Stable Trend, on TransEd Partners General Partnership

DBRS Limited (DBRS) has today finalized the provisional rating of A (low) with a Stable trend assigned to the $394.5 million Senior Long-Term Amortizing Bonds (Series A Bonds) of TransEd Partners General Partnership (ProjectCo), the special-purpose entity created to design, build, finance, maintain and perform lifecycle obligations of the Valley Line LRT – Stage 1 Project (the Project) under a 34.8-year project agreement with the City of Edmonton (the City). The rating is supported by the availability-based revenues from the City, the pass down of nearly all of ProjectCo’s construction period risks on a date-certain, fixed-price basis to the Design-Build Contractor, and the pass down of nearly all service period obligations, including lifecycle and handback risk, to an experienced Service Provider.

The Project entails the construction of a low-floor, urban-style Light Rail Transit (LRT) system of approximately 13 kilometres in southeast Edmonton, Alberta. Along the alignment there will be 11 at-grade neighbourhood stops and one above-grade station as well as at-grade, below-grade and above-grade sections of trackway. The majority of the alignment runs through a fairly low density suburban setting, with only three stations located close to downtown. Key structures to be constructed include a 400-metre mined tunnel, a 250-metre cable-stay bridge across the North Saskatchewan River, elevated guideways and an Operations & Maintenance Facility. The construction task also includes the provision and commissioning of Light Rail Vehicles (LRVs) and associated subsystems. DBRS considers the construction task to be on the higher end of low complexity, as explained further in the report.

The Design Builder (DB Contractor) is a joint venture comprising of EllisDon Civil Ltd., Bombardier Transportation Canada Inc. and Bechtel Canada Co. The DB Contractor’s obligations under the $1,291.5 million Design-Build Agreement are supported by letters of credit (LCs) equalling in aggregate 5% of the contract price, and backed by parent company guarantees from EllisDon Inc., Bombardier Inc. Bombardier Transportation (Global Holding) UK Limited, Bechtel Global Infrastructure and Minerals, Inc. (BGIMI) and BNT International Corporation (BNTIC), all subject to a limit of liability of 40% of the contract price. The City has outlined a 4.8-year construction phase under the PA, which is viewed as a fairly lenient schedule. The underlying creditworthiness of the DB Contractor guarantor and performance security package are supportive of the rating.

Upon achieving the target Service Commencement, expected on December 15, 2020, the 30-year service phase will commence. ProjectCo’s operations, maintenance and rehabilitation (OMR) obligations during the service phase will be passed down to a general partnership consisting of EllisDon TransEd O&M Partner Inc., Bombardier Transportation Canada Inc. and Bechtel TransEd O&M Co. (collectively, the Service Provider). The Service Provider’s responsibilities include operations, routine and lifecycle maintenance of the Project assets, including maintenance and lifecycle responsibilities for the rolling stock and associated systems. The Service Provider will also be responsible for operation of the LRVs. The Service Provider’s obligations will be supported by a limit of liability of 200% of the average annual OMR payments at termination, backed by parent guarantees and an LC equal to 50% of the average annual OMR payments, indexed.

The City will make progress payments of $728.2 million during the construction term and a lump-sum payment of $243.2 million on achieving Service Commencement, a portion of which will be used to retire the senior short-term bank facility. The balance of funding for the Project will come from the $394.5 million senior long-term amortizing bonds and from an equity contribution of $69.9 million, representing 10.5% of private capital at financial close, which will be supported by an LC until contributed. The minimum historical debt service coverage ratio (DSCR) is projected to be 1.20 times (x), whereas the equity lockup DSCR is 1.15x. ProjectCo’s financial projections feature resiliencies of 28.1% for the operations and maintenance budget, and 32.2% for the rehabilitation budget. Although the lifecycle resiliency falls comfortably in the “A”-range rating category for LRT credits, DBRS notes that the operation and maintenance resiliency is viewed as tight, but acceptable, with the resiliency falling at the lower end of the A (low) rating. The key driver of lower resiliencies compared to other public-private partnerships (PPP) projects is the large amount of government funding during the construction phase lending to a capital structure of private funding that is 66.7% of the initial capital cost as well as the larger-than-typical operating budget associated with the LRT system.

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.