DBRS Confirms ITS SCOC Partnership at A (low), Stable Trend

DBRS Limited (DBRS) has today confirmed the rating of A (low) with a Stable trend on the $29.4 million Senior Short Term Bonds and $104.8 million Senior Long Term Bonds of Integrated Team Solutions SCOC Partnership (ProjectCo), the special-purpose entity created to design, build, finance and maintain the Phase One Civic Operations Centre (the Project) under a 27-year project agreement (PA) with the City of Saskatoon (the City).

The rating is underpinned by the low complexity of the Project, the creditworthiness of the construction contractor and a suitable construction security package. ProjectCo dropped down (on a back-to-back basis) all the design, construction and commissioning obligations under the PA to EllisDon Design Build Inc. (the Construction Contractor) through a fixed-price date-certain Construction Contract.

Construction advanced well during 2016. Site services are generally complete. All earthworks and asphalt pavement works are also complete. Building envelope enclosure with permanent roofing and walls was achieved on February 12, 2016, 50 days ahead of schedule. Although some delays were reported with respect to the completion of floor slabs, these works are now complete and the delays are not expected to have a material impact on the schedule. The mechanical and electrical fit-out works were also somewhat delayed because of certain boiler-quality issues, although these have now been resolved through the replacement of malfunctioning units. All major permits have been received. Measured by the reported value, by the end of October 2016, the design and construction works are approximately 98% complete, 0.34% behind the maximum payment curve. The Construction Contractor is now mainly focused on finishing and commissioning activities. According to the Finance Parties’ Technical Advisor (FPTA), the Mott MacDonald Group, this represents the current primary risk to the achievement of substantial completion, although the independent commissioning agent appeared to believe that the commissioning program was progressing well. The City has issued the Partial Certificate of Occupancy in October 2016 for the transit operation facility, enabling the City and non-construction personnel to use the facility, which is a positive indicator that the Project is approaching completion as planned. The FPTA currently considers the Project to be on target for the scheduled substantial completion date (December 31, 2016); however, DBRS notes that negative rating action may result if it becomes apparent that the Project would be materially delayed in achieving substantial completion.

The service phase will start upon the achievement of substantial completion and the City shall make performance-based availability payments to ProjectCo until the PA expiry date on December 31, 2041. All service risks and responsibilities are passed down on a back-to-back basis to ENGIE Services Inc. (ENGIE Services or the Service Provider; formerly Cofely Services Inc.) over the entire service phase through a fixed-price Service Contract, supported by a parent company guarantee from ENGIE Energy Services SA (formerly GDF Suez Energy Services SA), which is considered to be an investment-grade entity. Effective April 1, 2016, Cofely Service Inc. was rebranded to ENGIE Services Inc. while the name of its parent company guarantor also changed to ENGIE Energie Services SA from GDF Suez Energie Services SA. ProjectCo confirmed that the changes were in name only, that the Service Provider for the Project remained the same and that there was no change in the entity’s ownership or legal structure.

The City shall make a lump-sum payment of $38.6 million at substantial completion, part of which will be used to fully redeem the Senior Short Term Bonds. The Senior Long Term Bonds will be repaid quarterly during the service phase. The minimum debt service coverage ratio (DSCR) of 1.15 times (x) and equity lock-up DSCR of 1.12x are lower than typically seen for availability-based public-private partnership projects in the “A” range; however, the operating and maintenance resilience of 53.3% and lifecycle resilience of 46.9% are supportive of the rating.

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.