DBRS Confirms Mountain View Partners GP at A (low) with a Stable Trend

DBRS Limited (DBRS) confirmed its rating of A (low) with a Stable trend on the $380.8 million Series A Bonds (the Bonds) of Mountain View Partners GP (MVP or ProjectCo), the special-purpose entity (SPE) created to design, build, finance and maintain the Southwest Calgary Ring Road Project (the Project) under a 35-year project agreement (PA) with HMQ in right of the Province of Alberta (the Province or Alberta).

The rating is underpinned by the low complexity of the Project, the creditworthiness of the construction contractor and the construction security package. ProjectCo dropped down on a back-to-back basis all the design, construction and commissioning obligations under the PA to KGL Constructors (Construction Contractor or KGL), a Partnership through a fixed-price date-certain construction contract. On a joint and several basis, the Construction Contractor’s obligations are fully backed by the parent company guarantees from Kiewit Infrastructure Group Inc., Graham Business Trust and Ledcor Industrial/Mining Group Ltd.

As of July 31, 2017, approximately 27.2% of construction works had been completed when measured by the earned contract value, putting the project slightly ahead of schedule. Major construction activities currently underway include earthworks, structures, girder fabrication, demolition, drainage and utilities work. All permits required for the current construction activities have been received. Four change order confirmations have been issued by the Province, with an assessed net cost saving of $2.9 million, which will be applied to progress payments from the Province. Geotechnical conditions are found generally in line with expectations. Utility relocation works are slightly ahead of schedule, although DBRS notes that the relocation of an existing ATCO high-pressure pipeline is on the critical path of the project schedule and is expected to be completed by early spring next year. Requested by the Province, the ProjectCo is preparing an amendment to the PA with respect to building the North Asphalt Plant in a new location because of public concerns regarding the original location. This amendment is expected to be executed around November 2017 and cost neutral.

Full availability payments will start after the Remaining New Infrastructure (RNI) traffic availability and will continue until the PA is either terminated or expires on September 30, 2051. ProjectCo retains lifecycle and handback obligations, but passes down the annual operation and routine maintenance (O&M) works to Alberta Highway Services Ltd. (AHSL or the Operator) through a fixed-price O&M Contract. The minimum debt service coverage ratio (DSCR) is projected to be 1.20 times (x), which is standard for availability-based public-private partnership (PPP) projects in the “A” range. The equity lockup DSCR is 1.135x, which is lower than typically seen but considered suitable for the rating, given the O&M cost resilience of 45.1% and lifecycle cost resilience of 31.6%.

DBRS notes that, while not expected, the rating may be negatively affected if (1) the utility relocation works suffer significant delays, and it becomes apparent that the Priority New Infrastructure (PNI) traffic availability will be materially postponed or (2) if the executed first amendment to the PA materially alters the risk profile of the Project and exposes ProjectCo to unexpected and significant budgetary or schedule uncertainties. A rating upgrade is considered unlikely.

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, which can be found on dbrs.com under Methodologies.

The rated entity or its related entities 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.