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

DBRS Limited (DBRS) placed the rating of CSS (FSCC) Partnership’s (ProjectCo) $190.3 million Senior Secured Debt Under Review with Negative Implications. ProjectCo is the special-purpose entity created to design, build, finance and maintain an approximately 665,000 square foot Forensics Services and Coroner’s Complex (the Project) under a 32.5-year public-private partnership with Ontario Infrastructure and Lands Corporation (formerly known as Infrastructure Ontario). The rating action results from Carillion plc’s (the Service Guarantor) announcement on January 15, 2018, that it is entering into compulsory liquidation after efforts to obtain short term financial support and discussions with stakeholders regarding options to reduce debt and strengthen the balance sheet did not succeed. Carillion plc provides the guarantee supporting Carillion Services (FSCC) Inc.’s (the Service Provider) obligations under its service contract with ProjectCo (the Service Contract).

As noted in the DBRS press release dated January 12, 2018, insolvency of the Service Guarantor is an Event of Default under the financing documents for the Project. Notwithstanding, the financing documents provide that such Event of Default has not occurred, if, within 30 days, ProjectCo provides a remedial plan acceptable to the Collateral Agent for prompt replacement of the Service Guarantor. ProjectCo has indicated it is considering various options and will continue to provide operation and maintenance (O&M) and lifecycle services. In the event that the Service Provider and/or the Service Guarantor is replaced, the impact on the rating would be dependent on the credit profile of the new entity and the resulting financial metrics. DBRS intends to conclude its review once further clarity on the remedial plan is available, and any required actions under the remedial plan are concluded.

As also noted in the above-mentioned DBRS press release, the Project has otherwise been performing well with no operating concerns. Failure points totaled 374 for the 12 months ending November 2017, and deductions amounted to $81,420 for the first 11 months of 2017, both of which DBRS considers low. Minimum/equity lock-up debt service coverage ratio projections of 1.25 times (x) and 1.15x respectively, a six-month debt service reserve, and a letter of credit support for six months of O&M fees are maintained.

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

The principal methodology is Rating Public-Private Partnerships, 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 access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

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