DBRS Confirms Halifax-Dartmouth Bridge Commission at AA (low)

DBRS has today confirmed the rating of the Halifax-Dartmouth Bridge Commission (the Commission or HDBC) at AA (low), with a Stable trend. HDBC remains on solid financial footing after the elimination of a significant portion of outstanding debt at the end of 2007 and the continuation of sound operating results. Strong interest coverage and prudent management should help the Commission maintain solid credit fundamentals while conducting heavy capital spending in the coming years.

Sound performance continued in 2007, with net income near the five-year average at $6.5 million, reflecting reduced net interest costs on lower debt, offset by an 18% increase in operating, maintenance and administrative (OM&A) charges, part of which was due to projects brought forward from the prior year. The traffic fundamentals of the bridge remained solid given sound economic conditions in the region and limited weather- and construction-related disruptions, which supported modest traffic growth of 0.1%, following above-average growth in 2006.

Results are budgeted to strengthen in 2008 as notably lower debt servicing charges should help mitigate reduced investment income on lower fund balances and higher operating and maintenance spending. The elimination of tokens and the deposit for transponders, as of spring 2008, will encourage use of the automated electronic tolling system meant to ease congestion and increase capacity, albeit at a modestly higher cost of operation.

At the maturity of the revenue bonds in December 2007, the Commission used reserve funds to eliminate $46 million in debt and refinanced the balance with a 12-year $60 million loan from the Province of Nova Scotia. The new debt is partially amortizing and is bound by the same covenants and reserve requirements as the retired bonds, but it bears a notably lower interest of 5.13% compared with 5.95% previously. In addition, the Commission acquired a $60 million provincial line of credit, which remained undrawn as of this date. Nevertheless, given more favourable interest rates, continued slow traffic growth and sound expenditure control, interest coverage should remain solid.

Capex will continue to be heavy through to 2010 as the Commission works to reduce the list of small required initiatives before commencing the replacement of the deck of the suspension spans on the Angus L. Macdonald Bridge, expected to occur within the next five or six years. Debt should follow a slow downward trend until this major project gets underway, which is currently estimated at $70 million and will be primarily debt financed. Nonetheless, this is expected to be easily manageable for the credit. Over the longer term, HDBC also continues to investigate the possibility of construction of a third harbour crossing. A recently released report identified that such a crossing should be needed between 2016 and 2026, although there is still too much uncertainty with respect to the financial implications to incorporate such a potential initiative into the credit analysis.

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