DBRS Confirms Integrated Team Solutions SCOC Partnership at A (low), Stable Trend

DBRS Limited (DBRS) confirmed the rating of A (low) with a Stable trend on the Senior Long Term Bonds of Integrated Team Solutions SCOC Partnership (ProjectCo), the special-purpose entity (SPE) created to design, build, finance and maintain the Phase One Civic Operations Centre (the Project) under a 27-year project agreement (PA) with the City of Saskatoon (the City).

The rating is underpinned by the low complexity of the Project, the creditworthiness of the contractors and suitable security packages. ProjectCo dropped down, on a back-to-back basis, all the design, construction and commissioning obligations under the PA to EllisDon Design Build Inc. (the Construction Contractor) through a fixed-price, date-certain Construction Contract and all service risks and responsibilities to ENGIE Services Inc. (ENGIE Services or the Service Provider; formerly Cofely Services Inc.) over the entire service phase through a fixed-price Service Contract. The Service Provider’s performance is supported by a parent company guarantee from ENGIE Energy Services SA (formerly GDF Suez Energy Services SA), which is considered to be an investment-grade entity.

The project achieved Substantial Completion on December 31, 2016, with the Final Completion expected to be achieved in early 2018. Following the Substantial Completion, the City has occupied the facility and started making performance-based availability payments to ProjectCo. For the ten months ending October 2017, a total of $52,256 in deductions has been incurred. Although the total deductions have reached around 25% of the PA annual termination threshold level, DBRS takes comfort in the fact that most of the failures and deductions happened during the first five months of operation and the number of failures has been trending down consistently from the beginning of the operation. Moreover, the incurred deductions have been fully passed down to ENGIE Services Inc. The Project’s total energy consumption for the ten months ending October 2017 has been reportedly lower than the target consumption levels.

The City made a lump-sum payment of $38.6 million at substantial completion, part of which was used to fully redeem the Senior Short Term Bonds. The Senior Long Term Bonds are being repaid quarterly during the service phase. ProjectCo’s financial performance has been stable with the debt service coverage ratio (DSCR) for the nine months ending September 2017 reported at 1.27 times (x). This is slightly higher than the expected DSCR of 1.25x, due to lower than anticipated SPE-related expenses. The forecast minimum DSCR of 1.15x and equity lock-up DSCR of 1.12x are lower than typically seen for availability-based public-private partnership projects in the “A” range; however, the operating and maintenance resilience of 53.3% and Lifecycle resilience of 46.9% are supportive of the rating and reflective of a fairly simple suite of services to be provided. DBRS believes that a positive rating action is unlikely. Negative rating pressure could result if there is material deterioration of the operating and financial performance of the Project.

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

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

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 under Related Documents or by contacting us at info@dbrs.com.

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

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.