DBRS downgrades two Canadian PPPs

12 October 2017 - 12:00 am UTC

DBRS on 12 October downgraded the bonds associated with the Northwest Anthony Henday Drive to BBB (high) from A (low) with the trend remaining stable.

The ratings agency cited a deterioration of the projects’ operating and lifecycle resilience as the reasons for the downgrade.

The transaction reached financial close in July 2008. The transaction reached financial close in July 2008, financed through a CAD 266m bond issuance maturing 30 April 2041. The current equity investors are BBGI (50%) and HICL Infrastructure Company (50%).

The project is in its sixth year of operation, having opened to traffic on 1 November 2011.

DBRS also on 10 October downgraded CSS (FSCC) Partnership’s senior secured debt to BBB (high) with stable trend from A (low) and removed the rating from “under review with negative implications.”

CSS (FSCC) Partnership is the special purpose entity contracted by Ontario Infrastructure and Lands Corporation (OILC) to design, build, finance and maintain a 665,000-square-foot Forensics Services and Coroner’s Complex in Toronto.

The project reached financial close in June 2010, and has a duration of 32.5 years. Carillion in June 2016 sold its 50% stake in the asset to Concert Infrastructure, though the firm continues to fulfill facility management duties.

The ratings agency noted that the project’s O&M and lifecycle resiliencies of 46.7% and 45.2% respectively, map to a BBB (high) rating when the service provider is considered to be non-investment grade.

DBRS attributed the downgrade to a material deterioration in Carillion’s credit profile. The ratings agency also noted that the credit profile provides the guarantee supporting Carillion Services Inc.’s obligations under its service contract with CSS (FSCC) Partnership.

After reviewing additional disclosures made by Carillion on 29 September, DBRS no longer considers Carillion to have an investment-grade profile. As per the ratings agency’s methodology, the project’s O&M and lifecycle resiliencies of 46.7% and 45.2% respectively, now map to a BBB (high) rating when the service provider is considered to be non-investment grade.

DBRS on 28 July placed the project under review with negative implications following the announcement of its management’s reduced performance expectations. The ratings agency specifically noted an anticipated deterioration in cash flows on construction contracts, working capital outflows, and an expected impairment provision of GBP 845m (1.1bn USD), as well as the company’s planned exit from certain geographic markets.

The ratings agency in its noted that Carillion on 29 September released 1H 2017 interim results which projected GBP 1.1bn (USD 1.4bn) in losses before taxation, and a 161% increase in net borrowing from 31 December 2016. According to the DBRS statement, the company has initiated actions to improve the cash-flow position and improve its balance sheet.

On 28 July 2017, DBRS noted that the project had been performing well with no major operating concerns.

The ratings agency noted that during the first eight months of the year, failure points were well below notice warning thresholds. Deductions during the period were also low, except in January, when higher deductions were incurred that were attributable to elevator unavailability failures.

DBRS noted that a positive rating action is likely over the longer term provided that there is a material increase in Carillion’s creditworthiness, and the project continues to realize favorable operating results.