DBRS Confirms Capital City Link General Partnership Long-Term Senior Bonds at A (low), Stable

DBRS Limited (DBRS) has today confirmed the rating of A (low) with a Stable trend on the Long-Term Senior Bonds (the Senior Bonds) of Capital City Link General Partnership (ProjectCo or the Issuer), a special-purpose entity (SPE) created to design, build, finance, operate and maintain the final 27-kilometre northeast leg of Anthony Henday Drive in Edmonton (the Project) under a 34.5-year Design Build Finance Operate and Maintain Agreement (the DBFO Agreement) with the Government of Alberta (the Province, rated AA (high) with a Stable trend by DBRS).

All of ProjectCo’s construction-related obligations have been passed down to a design-build joint venture consisting of Flatiron Constructors Canada Limited (Flatiron), Dragados Canada, Inc. (Dragados), Aecon Construction Management Inc. (Aecon) and Lafarge Canada Inc. (Lafarge) (collectively, the DB Contractors). Construction activities, which began in May 2012, are approximately 97% complete as measured by fees earned by the DB Contractors. Although the Project has encountered delays primarily due to utility relocations and weather conditions, the work has been accelerated with the support of additional resources, and the TA expects that Traffic Availability is achievable on the scheduled Traffic Availability Date of October 1, 2016. DBRS notes that in case of delay in Traffic Availability, the sizeable LC posted by the DB Contractor is expected to adequately cover any liquidated damages.

The achievement of Traffic Availability in 2016 will mark the beginning of the 30-year service phase, and ProjectCo’s operating and routine maintenance obligations (O&M) during this period have been passed down to Volker Stevin Highways Ltd. (Volker or the Operator). Volker is currently responsible for O&M on approximately a quarter of Alberta’s highways and is therefore very familiar with the contractual requirements. Rehabilitation obligations for the new infrastructure have been retained by ProjectCo, and will be supported by a dynamic lifecycle reserving mechanism and ProjectCo’s relatively sound operating resilience, which is expected to be sufficient to absorb a 27% increase in the lifecycle and SPE budget (30% lifecycle alone) or a 40% shock to the O&M budget. The forecast financial metrics remain unchanged from the time of the initial rating assignment.

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 Partnerships (March 2016), which can be found on our website under Methodologies.

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