DBRS Confirms British Columbia Ferry Services Inc. at “A,” Changes Trend to Positive

DBRS Limited (DBRS) has today confirmed the Issuer Rating and Senior Secured Bonds rating of British Columbia Ferry Services Inc. (BC Ferries or the Company) at “A,” and has changed the trend on the ratings to Positive from Stable. The trend change reflects the continued strength in traffic exhibited so far in F2017, representing the third year of resumed traffic growth after several weak years following the financial crisis. The trend change also acknowledges the proven operating resilience and solid management demonstrated by the Company, having weathered challenging macroeconomic conditions while maintaining solid debt service coverage ratios (DSCRs) of above 2.0 times (x) and successfully returning to growth.

Solid passenger traffic growth increases of 3.8% and 4.5% were posted for Q2 F2017 and F2016, respectively, accompanied by vehicle traffic growth of 5.1% and 4.9%, respectively, solidifying the Company’s recovery from the negative growth trend that emerged following the financial crisis. Overall revenue increased by 5.7% in Q2 F2017, primarily driven by the uptick in traffic, as the average system-wide tariff increase established for F2017 was effectively nil. The average system-wide tariff increase of 2.9% and the traffic uptick drove a revenue increase of 3.4% in F2016. Operating expenses rose alongside growth but to a somewhat lesser degree, up 3.1% in Q2 F017 over the same period the previous year, and similarly up 3.3% in F2016 over F2015. These results led to a healthy increase in EBITDA of 9.6% year over year in Q2 F2017 following the growth of 3.3% achieved in F2016. The rise in EBITDA, coupled with lower debt levels, resulted in an increase in the DSCR to 3.3x in F2016 from 3.0x the year before.

For F2017, BC Ferries expects continued revenue growth largely generated by an increase in traffic, as exhibited so far in the year, while operating expenses are forecast to grow along with the rise in revenue, mainly attributable to increased staffing costs associated with higher traffic. As such, EBITDA is expected to grow by over 2% by the end of the F2017, which would result in a DSCR of approximately 3.0x, despite the expectation of a modest increase in debt levels in support of capital expenditure. Although DBRS does not expect DSCR levels to remain at 3.0x on a prolonged basis, a ratings upgrade may be awarded should year-end F2017 performance results be in line with expectations while the favourable outlook for the business is sustained.

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 principal methodology is Rating Public-Private Partnerships, which can be found on dbrs.com under Methodologies.