DBRS Confirms Capital City Link General Partnership Long-Term Senior Bonds at A (low), Stable Trend

DBRS Limited (DBRS) confirmed the rating of A (low) with a Stable trend on the Long-Term Senior Bonds of Capital City Link General Partnership (ProjectCo), a special-purpose entity (SPE) created to design, build, finance, operate and maintain the 27-kilometre northeast leg of Anthony Henday Drive in Edmonton (the Project) under a 34.5-year Design Build Finance Operate and Maintain Agreement with the Province of Alberta (rated AA (high) with a Negative trend by DBRS).

The Project achieved Traffic Availability on October 1, 2016, and Construction Completion was achieved on October 6, 2017. The achievement of Traffic Availability in 2016 marked the beginning of the 30-year service phase, and the Project has recently completed its first year of operations. ProjectCo’s operating and maintenance (O&M) obligations during this period have been passed down to Volker Stevin Highways Ltd. (Volker or the Operator). Volker is responsible for the O&M of approximately a quarter of Alberta’s highways and is therefore familiar with the contractual requirements. Rehabilitation obligations for the new infrastructure have been retained by ProjectCo and will be supported by a dynamic lifecycle reserving mechanism and ProjectCo’s relatively sound operating resilience, which is expected to be sufficient to absorb a 28.6% increase in the lifecycle and SPE budget or a 41.6% shock to the O&M budget.

Overall, operations have been going well, although deductions incurred to date total approximately $124,000 (~1.3% of annual O&M fees), which is somewhat higher than deduction levels observed among DBRS-rated public-private partnership projects. However, the deductions have been passed down to either the Operator or the Design-Build Contractors (i.e., Flatiron Constructors Canada Limited; Dragados Canada, Inc.; Aecon Construction Management Inc.; and Lafarge Canada Inc.) and have largely been a result of light fixture malfunctions and construction-related deficiencies. ProjectCo achieved an annualized debt service coverage ratio (DSCR) of approximately 1.40 times (x) in Q2 2017, ahead of the DSCR of 1.34x projected at financial close for the first operating year, as a result of savings in insurance fees and power costs that are expected to benefit the Project for the next three years. The forecast financial metrics remain unchanged from the time of the initial rating assignment, with projected debt-to-cash flow available for debt servicing of 12.6x by the second year of service and a projected minimum DSCR of 1.27x over the term of the service phase.

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.