DBRS Assigns Rating of A (low) with a Stable Trend to Mountain View Partners GP’s Series A Bonds

DBRS Limited (DBRS) has today assigned a provisional rating of A (low) with a Stable trend to the [$385.2 million] Series A Bonds (the Bonds) of Mountain View Partners GP (ProjectCo), the special-purpose entity created to design, build, finance and maintain the Southwest Calgary Ring Road Project (the Project) under a 35-year project agreement (PA) with HMQ in right of the Province of Alberta (the Province).

The Project consists of (1) the design, build and finance and, for a 31-year term commencing on October 1, 2020, operation, maintenance and rehabilitation of a portion of the southwest leg of the ring road in the City of Calgary (Priority New Infrastructure or PNI); (2) the design, build and finance and, for a 30-year term commencing on October 1, 2021, operation, maintenance and rehabilitation of the remaining portion of the southwest leg of the ring road (Remaining New Infrastructure or RNI); and (3) operation and maintenance of certain segments of bridge structures constructed by the Alberta Transportation Department two months after execution of the PA until the end of the Project term.

The rating is underpinned by the low complexity of the Project, the creditworthiness of the construction contractor and the construction security package. ProjectCo dropped down on a back-to-back basis all the design, construction and commissioning obligations under the PA to KGL Constructors (Construction Contractor), a Partnership through a fixed-price date-certain construction contract. On a joint and several basis, the Construction Contractor’s obligations are fully backed by the parent company guarantees from Kiewit Infrastructure Group Inc., Graham Business Trust and Ledcor Industrial/Mining Group Ltd., subject to a 40% liability cap, which is in line with expectation for a low-complexity civil project rated in the “A” category. The Construction Contractor’s security package also features a 5% performance letter of credit (LOC).

Once the PNI works reach 40% completion, the Province shall start making PNI progress payments on a quarterly basis until PNI traffic availability (target date on October 1, 2020). Thereafter, the Province shall make PNI availability payments. On RNI traffic availability, which is targeted on October 1, 2021, the Province shall also make a lump-sum payment of approximately [$145.1] million.

In addition to the Bonds, ProjectCo’s financing plan features a short-term senior construction facility and a medium-term credit facility that are gradually drawn during construction. ProjectCo will use the PNI progress payments and the lump-sum payment to be received at the RNI traffic availability to pay down the short-term credit facility. The medium-term credit facility will be serviced interest-only during construction and amortized quarterly during the operating period until it is fully repaid by September 2031. The short-term and medium-term credit facilities rank pari passu with the Bonds. The private funding also includes [$51.6 million] of equity contributions or deeply subordinated debts, part of which will be injected at financial close with the remainder secured with irrevocable standby LOCs from equity sponsors.

The full availability payments will start after the RNI traffic availability and will continue until the PA is either terminated or expires on September 30, 2051. ProjectCo plans to retain lifecycle and handback obligations, but will pass down on a back-to-back basis the annual operation and routine maintenance (O&M) works to Alberta Highway Services Ltd. through a fixed-price O&M Contract with a post-termination liability cap of 200% of annual average O&M fees (indexed), supported by a parent company guarantee from Colas Canada Inc. Liquidity will be mainly supported by a 50% performance LOC and a three-year forward-looking rehabilitation reserve account. The Project also features a dynamic lifecycle inspection and reserve in years ten, 15 and 23.

The minimum debt service coverage ratio (DSCR) is projected to be 1.20 times (x), standard for availability-based public-private partnership projects in the “A” range. The equity lockup DSCR is 1.135x, lower than typically seen but considered to be suitable for the rating, given the O&M cost resilience of 46.2% and lifecycle cost resilience of 31.6%.

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

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 to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodology is Rating Public Private Partnership, which can be found on our website under Methodologies.

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

The full report providing additional analytical detail is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.