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

DBRS Limited (DBRS) has today confirmed the ratings of A (low) with Stable trends on the $108.0 million Senior Long-Term Amortizing Bonds (the Series A Bonds) and the $264.3 million Senior Short-Term Bullet Bonds (the 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 (PA) with the Province of Ontario (the Province; rated AA (low) with a Stable trend by DBRS).

The Project is 25 months into the 4.8-year construction period, with the value of work completed equalling approximately 44% of the total contract price as of January 2017. Construction has generally progressed well, especially on structures, with the Project marginally ahead of the draw curve. A delay notice was served by ProjectCo on the Province in October 2016 due to a utility relocation impacting the first interchange availability date in Phase 2A; however, the delay was subsequently recovered through measures, such as working during the winter months. The Lenders’ Technical Advisor (LTA) has opined that the Phase 2A substantial completion date and overall substantial completion dates of December 31, 2017, and December 31, 2019, respectively, are achievable, and that the remaining construction funds available are sufficient to carry out the balance of the work.

Clearing and grubbing activities for Phases 2A and Phase 2B were completed by July 2016. The foundations of Phase 2A structures were completed by October 2016 and those in Phase 2B are targeted to be completed toward the end of 2017. Girder fabrication and curing is complete for the structures in Phase 2A, with girder erection ongoing. The superstructure work for Phase 2A commenced in the second half of 2016, with completion targeted for the third quarter of 2017. Earthwork, drainage activities and structural work have progressed during the winter, and road work and construction of ramps are ongoing. The LTA has indicated there are no concerns regarding permitting or procurement. The design is 99% complete for Phase 2A and 89% complete for Phase 2B.

The LTA has indicated that the relationship with the Province is good, with a level of cooperation typical of other public-private partnership projects. Variations issued amount to less than 0.1% of the contract value and the LTA has indicated that they do not impact the Project schedule. Financial projections remain unchanged from those at financial close. The Project is funded by private capital until the first milestone payment, currently scheduled for December 31, 2017, with a minimum forecast historical debt service coverage ratio of 1.39 times (x) and an equity lock-up of 1.15x. 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.

RATING DRIVERS
While not currently envisioned, DBRS may take a rating action should the Project experience material delays or in the event of a material degradation of the primary construction contractor guarantor (Ferrovial S.A), among other reasons.

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 principal methodology is Rating Public-Private Partnerships (March 2017), which can be found on dbrs.com 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.