DBRS Confirms South Coast British Columbia Transportation Authority (TransLink) at AA, Stable Trend

DBRS Limited (DBRS) has today confirmed the Issuer Rating and Senior Unsecured Debt rating of the South Coast British Columbia Transportation Authority (TransLink) at AA and the Commercial Paper rating at R-1 (middle), all with Stable trends. The ratings and Stable trends are supported by TransLink’s taxing authority in the Greater Vancouver Regional District (Metro Vancouver), a broad and relatively affluent tax base, as well as by a sound fiscal planning framework, diverse revenue streams and solid operating performance in recent years. The Metro Vancouver Mayors’ Council Vision for Regional Transportation (Mayors’ Vision) is a ten-year regional plan guiding capital investment and service enhancement in Metro Vancouver that will require significant capital investment. As TransLink and regional municipalities plan to proceed with Phase 1 of the Mayors’ Vision, debt is expected to be moderately higher over the medium term, thereby constraining improvement in the ratings.

TransLink’s ridership growth was 1.8% in 2015, a notable improvement over tepid growth in 2014. This trend supported a solid DBRS-adjusted operating surplus of $160.0 million, or nearly 10.0% of revenues, up from $20.4 million the prior year. Revenues rose by 12.3%, reflecting growth in transit fare and taxation revenue and the significantly higher capital funding recognized during the year. Excluding capital funding, revenues rose by a more moderate 2.9% year over year. Expense growth was fairly well contained at 2.7%, with the largest increases in the rail division and general corporate areas amid the full roll-out of the integrated fare card and gate system. At mid-year 2016, operating results were tracking well ahead of budget, based on positive transit and taxation revenue variances and a lower expense track. DBRS anticipates that positive ridership trends and disciplined expense management should result in TransLink exceeding its consolidated budget surplus of $172.1 million.

RATING DRIVERS
The ratings outlook is stable. Greater clarity on long-term capital funding sources and stability in TransLink’s governance framework have reduced uncertainty in the operating outlook since the time of the last review. While not anticipated, the ratings could experience downward pressure should operating performance deteriorate significantly on a sustained basis or if debt evolves materially above current projections. With an anticipated peak in DBRS-adjusted net debt of approximately $2.97 billion, or roughly $1,120 per capita, in 2019 based on the investment plan associated with Phase 1 of the Mayors’ Vision and projected population growth, DBRS notes that the path for debt appears consistent with the current rating category over the forecast horizon. Upward pressure on the ratings is not foreseen but could materialize if the debt burden were to be reduced significantly.

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 methodologies are Rating Canadian Municipal Governments (May 2016) and DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers (April 2016), which can be found on our website under Methodologies.

The rated entity did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.

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.