DBRS Places CSS (FSCC) Partnership Under Review with Negative Implications

DBRS Limited (DBRS) has today placed the rating of CSS (FSCC) Partnership’s (ProjectCo) Senior Secured Debt Under Review with Negative Implications. ProjectCo is the special-purpose entity contracted by Ontario Infrastructure and Lands Corporation (OILC) to design, build, finance and maintain a new 665,000-square foot Forensics Services and Coroner’s Complex (the Project) located in Toronto under a 32.5-year public-private partnership (PPP) agreement. The rating action results from the potential material deterioration in the credit profile of Carillion plc, which has provided the guarantee supporting Carillion Services (FSCC) Inc.’s (the Service Provider) obligations under its Service Contract with ProjectCo.

As noted in the commentary released by DBRS on July 19, 2017, on the credit, Carillion plc’s H1 2017 trading update indicated a reduction in performance against management’s expectations for 2017 because of a deterioration in cash flows on construction contracts, combined with working capital outflows, and an expected impairment provision of GBP 845 million for H1 2017, mainly related to three PPP projects in the United Kingdom, the exit from certain markets in the Middle East and the exit from the construction market in Canada. DBRS’s preliminary assessment indicates that the credit profile of Carillion plc is likely to be materially negatively affected. DBRS intends to conclude the review once further information regarding Carillion plc is available.

As also noted in the commentary, the Project has otherwise been performing well with no major operating concerns. During the first five months of 2017, failure points were well below the warning notice thresholds. Deductions during the period were also low, except in January 2017, when higher deductions were attributable to elevator unavailability failures, which were fully passed down to the Service Provider. ProjectCo has indicated that the working relationship with OILC remains collaborative.

Notes:
All figures are in in Canadian dollars unless otherwise noted.

The principal methodology is Rating Public-Private Partnerships, which can be found on dbrs.com under Methodologies.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

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