DBRS Confirms Rating of A (low), Stable Trend, on TransEd Partners General Partnership

DBRS Limited (DBRS) has today confirmed the rating on the $394.5 million Senior Long-Term Amortizing Bonds (the Series A Bonds or the Bonds) of TransEd Partners General Partnership (ProjectCo) at A (low) with a Stable trend. ProjectCo is the special-purpose entity created to design, build, finance, maintain and perform lifecycle obligations of the Valley Line LRT - Stage 1 project (the Project) under a 34.8-year project agreement with the City of Edmonton (Edmonton or the City).

Site mobilization efforts began in June 2016, and to date, construction activities have generally progressed on track to meet the target Service Commencement Date of December 15, 2020. Approximately 49% of the construction tasks to be subcontracted by the design-build (DB) joint venture, consisting of EllisDon Civil Ltd., Bombardier Transportation Canada Inc. and Bechtel Canada Co. (the DB Contractor), have been procured. A few construction milestones have been advanced to earlier dates, while tunnel-excavation works have been postponed because of a slower-than-anticipated design-development process. Notwithstanding, the delayed tunnel works do not affect the critical path, and the DB Contractor intends to recover delays by re-sequencing certain activities. The overall construction progress as at November 2016 is 4%, which is in alignment with the revised schedule. ProjectCo expects to reach the 10% construction completion milestone as originally planned in April 2017, which will trigger progress payments from the City. The lender’s technical advisor (LTA) considers this target as challenging in view of the design progress delays and cold winter conditions in Edmonton. However, DBRS notes that the risk of a delay in receiving progress payments from the City has been passed down to the DB Contractor.

ProjectCo has indicated that light rail vehicle (LRV) assembly will now take place in Kingston, Ontario. DBRS has been advised that there are no delays and that the LRV procurement process is progressing on schedule. DBRS views the decision to move production to Kingston as favourable for this project, given that the key focus of the Thunder Bay, Ontario, production plant is currently Toronto Transit Commission vehicles and will remain so until at least 2019. Furthermore, the Kingston plant has recently undergone an expansion, almost doubling in size, to accommodate production of a greater number of vehicles. The LTA is comfortable with the progress thus far and is anticipating that the first component pieces will arrive in summer 2017.

Upon achieving the target Service Commencement Date, the 30-year service phase will begin. ProjectCo’s operations, maintenance and rehabilitation (OMR) obligations during the service phase will be passed down to a general partnership consisting of EllisDon TransEd O&M Partner Inc., Bombardier Transportation Canada Inc. and Bechtel TransEd O&M Co. (collectively, the Service Provider). The Service Provider’s responsibilities include operations, routine and lifecycle maintenance of the Project’s assets, including OMR responsibilities for rolling stock and associated systems. Financial projections for the service phase remain unchanged.

RATING DRIVERS:
-- As long as the Project is progressing on track to meet the target Service Commencement Date of December 15, 2020, DBRS is not expecting any upward or downward movement in 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 principal methodology is Rating Public-Private Partnerships, which can be found on dbrs.com under Methodologies.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

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.