DBRS Confirms Plenary Justice Okanagan LP at A (low) with a Stable Trend

DBRS Limited has today confirmed the rating of A (low) with a Stable trend on the $114.5 million Series A Senior Notes (Senior Notes) of Plenary Justice Okanagan LP (ProjectCo), the special-purpose entity created to design, build, finance and maintain the $185.5 million Okanagan Correctional Centre (the Project) under a 32.6-year Project Agreement signed between ProjectCo and the Province of British Columbia (rated AA (high) with a Stable trend). The rating confirmation reflects the achievement of substantial completion, the solid experience of PCL Construction Group Inc. (the Design-Build Contractor) and Honeywell Limited (Canada) (Honeywell or the Service Provider), the relatively low complexity of the work, the fairly straightforward service obligations and the sound operating resiliencies.

On September 30, 2016, substantial completion was achieved as planned, and the remaining punch list items are expected to be completed in the months that follow. Upon substantial completion, Honeywell began providing facility maintenance (FM) as well as lifecycle maintenance and utilities management services for the 30-year service phase of the Project. The Service Provider performs the majority of the facility’s maintenance and lifecycle work, while certain ancillary FM functions like waste management and grounds maintenance are subcontracted to other specialized parties. ProjectCo only retains responsibility for general management, performance monitoring and the maintenance of certain insurances. Overall, the service specifications are viewed as standard for a correctional centre, with payment deductions generally expected to be modest over the life of the Project.

Typical of public-private partnerships, leverage is relatively high with a gearing ratio of 90.5/9.5 at financial close. This is also reflected in the debt-to-cash flow available for debt service ratio of 13.3 times (x) projected in the first year of operation, declining thereafter, and the debt service coverage ratio (DSCR) of 1.21x foreseen over the Project’s term. In addition, the break-even levels to achieve a DSCR of 1.0x for re-pricing of FM expenses (44%) and lifecycle costs (46%) are viewed as adequate by DBRS and are supported by a high-quality Service Provider.

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, 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.