DBRS Confirms Blackbird Infrastructure 407 General Partnership at A (low)

DBRS Limited (DBRS) has today confirmed the rating of A (low) with a Stable trend on the $108.0 million Senior Long-Term Amortizing Bonds (Series A Bonds) and the $264.3 million Senior Short-Term Bullet Bonds (Series B Bonds) of Blackbird Infrastructure 407 General Partnership (ProjectCo), the special-purpose entity created to design, build, finance, maintain and perform lifecycle obligations of the Highway 407 Phase 2 east extension (the Project) under a 32.8-year project agreement with the Province of Ontario (the Province).

The Project is now entering its second year of a 4.8-year construction schedule, with the value of work behind the maximum draw curve by less than 0.1%. The value of work completed to date is roughly 25% of the total contract price. Construction activities have primarily involved site preparation and design development. In Phase 2A, clearing and grubbing is approximately 80% complete and excavation work is well advanced. Similar works are ongoing in Phase 2B areas. DBRS understands that construction tasks are progressing as planned, and the Lenders’ Technical Advisor has opined that the substantial completion dates are achievable and the remaining construction funds available are sufficient to carry out the remainder of work.

Construction is expected to continue as scheduled in the next year. Major subcontracts have been tendered or awarded so as to permit the necessary construction activities to proceed as planned. To date, the Construction Contractor (CC) has not experienced any shortage of labour or materials and does not foresee this to be an issue in the near future. ProjectCo further expressed that relationships with the Province have been good and that cooperation has been typical of other public-private partnership projects.

The Project’s financial projections remain unchanged from those in place at financial close. The Project will continue to be funded by private capital until the first milestone payment, which is currently scheduled for December 31, 2017. The minimum historical debt service coverage ratio (DSCR) is 1.39 times, whereas the equity lock-up DSCR is 1.15 times. ProjectCo’s financial projections feature resiliencies of 44.8% for the operations and maintenance budget and 25.3% for the rehabilitation budget, which are supportive of the rating.

In 2015, CRH plc acquired certain assets from Holcim Ltd. They included Holcim’s stake in the Project as equity sponsor, construction contractor and OMR Contractor. The change in ownership had no impact on the Project’s structure or participants other than changes to the legal names. The changes are not material to the credit rating in DBRS’s view, as Ferrovial S.A. remains the stronger of the two CC guarantors.

In 2016, the CC plans to continue advancing construction activities for Phase 2A in preparation for its completion anticipated in December 2017. Precast components are expected to be delivered in the summer of 2016, and following that, structures will be completed by fall 2016. Paving operations are planned for 2017 to meet the Phase 2A completion date. As tasks are completed in Phase 2A, resources will be directed to complete Phase 2B. While not currently envisioned, DBRS may take a rating action should the Project experience material delay, or in the event of material degradation of the primary construction contractor’s guarantor.

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.