DBRS Confirms Strait Crossing Development Inc.’s 6.17% Revenue Bonds at BBB (low), Stable Trend

DBRS Limited (DBRS) has today confirmed the rating on Strait Crossing Development Inc.’s (SCDI or the Company) 6.17% Revenue Bonds at BBB (low) with a Stable trend. This confirmation is primarily based on improving traffic fundamentals, good expense management, ongoing debt reduction and improvements in financial metrics.

The weak traffic trends of recent years continued into the first quarter of 2015 before improving. The winter of 2014–2015 was one of the worst ever for Prince Edward Island and New Brunswick and negatively affected traffic. Since then, traffic has remained on a rising trajectory despite low population growth and weak economic growth, leading to the 2015 traffic volume of 766,921 vehicles, which surpassed budget by 3.0% and increased year over year by 3.3%. A modest $0.50 toll increase in 2015 and good cost management continue to support revenues and EBITDA, which rose 5.9% year over year. Tightly controlled operating and administrative expenditures combined with lower outstanding debt resulted in a debt service coverage ratio (DSCR), as calculated by DBRS, of 1.19 times (x) for fiscal 2015, compared with 1.13x for 2014. For fiscal 2015, SCDI reported a DSCR, as defined in the Master Trust Indenture, of 1.14x, which is an improvement over the fiscal 2014 DSCR of 1.11x.

Traffic in the first eight months of fiscal 2016 has shown even stronger growth, with the traffic volume of 580,324 vehicles exceeding budget by 10.7% and last year’s traffic volume by 10.3%. The winter of 2015–2016 was very mild, while the weak Canadian dollar and low fuel prices seem to have driven tourism up considerably in the region in the spring, a situation that has continued into July and August. Toll revenues for the period ending June 30, 2016, of $15.8 million were 8.3% over budget and 12.0% higher year over year. As at June 30, 2016, the Company reported a DSCR, as defined in the Master Trust Indenture, of 1.17x. As calculated by DBRS, the DSCR for the last 12 months ending June 30, 2016, was 1.27x.

DBRS expects that, barring any unforeseen material changes to current economic conditions, SCDI will continue to report stable or slightly improving traffic and financial metrics, which are rebuilding flexibility within the current rating. While presently viewed as being of low probability, the following factors could lead to a negative change in the credit rating: a significant and sustained decline in traffic or traffic mix such that revenues drop significantly; large unexpected maintenance or rehabilitation items; and the DSCR, as calculated by DBRS, deteriorating to 1.10x or lower.

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.

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.