DBRS Confirms Maritime Link Financing Trust’s 3.50% Bonds, Series A at AAA, Stable

DBRS Limited (DBRS) confirmed the AAA rating with a Stable trend on the 3.50% Bonds, Series A of $1.3 billion due December 1, 2052 (the Bonds), issued by Maritime Link Financing Trust (ML Financing Trust or the Issuer), a special-purpose funding trust established to facilitate the financing of the Maritime Link Transmission Project (the Project). The Bonds will fully amortize by the maturity date. The rating is predicated on the unconditional and irrevocable federal loan guarantee (the Guarantee) of the Bonds provided by the Government of Canada (Canada or the Guarantor). The rating action follows DBRS’s recent confirmation of Canada’s sovereign rating at AAA with a Stable trend (see DBRS’s related press release dated October 12, 2018).

DBRS notes that the Guarantee met its criteria for a flow-through of Canada’s sovereign rating to the Bonds. The Guarantee constitutes the irrevocable, unconditional, absolute and continuing obligation of Canada. There is no requirement to exhaust recourse against the Issuer before (1) bondholders are entitled to the payment from Canada; (2) all defences are waived by the government, and subrogation rights are postponed as long as the guaranteed obligations are still outstanding; and (3) no amendment of the Guarantee is permitted, except by agreement with the Indenture Trustee. Furthermore, release of the Guarantor is permitted only when all of its obligations are fully repaid. DBRS expects that the Bonds’ rating will continue to move in tandem with Canada’s sovereign rating, irrespective of the Project’s performance. Any upgrade or downgrade is expected to follow a similar rating action on Canada.

The Project is a 500-megawatt electric transmission line connecting Nova Scotia to Newfoundland and Labrador across the Cabot Strait. ML Financing Trust’s sole business is to issue the Bonds and on-lend the proceeds to NSP Maritime Link Inc. (NSPML), the project company responsible for construction and operations. Upon achieving in-service date, debt service is to be funded by principal and interest received on the back-to-back loan to NSPML, which in turn collects revenue from Nova Scotia Power Inc. (rated A (low) with a Stable trend by DBRS) and, in turn, Nova Scotia’s ratepayers. The Project achieved in-service date on January 15, 2018, although the Project is not expected to transmit the Nova Scotia Block of energy until 2020 because of the construction delay at the associated Muskrat Falls Project. From Q1 2018, NSPML has started collecting revenue from Nova Scotia Power Inc. and, in turn, from Nova Scotia’s ratepayers on an interim basis, which was approved by the Nova Scotia Utility and Review Board. The amount is more than sufficient to service the Project’s debt obligations.

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

The principal methodology is DBRS Criteria: Guarantees and Other Forms of Support, which can be found on dbrs.com.

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.

DBRS will publish a full report that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrs.com.