DBRS Assigns “A” Rating to 407 International Inc.’s New Issue, Stable Trend

DBRS Limited (DBRS) has today assigned a rating of “A” to the $250 million Series 17-A1 Senior Notes issue (the Notes) of 407 International Inc. (407 or the Company). The trend is Stable. The Notes have been issued from 407’s Shelf Prospectus dated December 13, 2016.

The intended use of proceeds from the Notes will be to: (1) repay principal amounts owing under the Company’s credit facilities, (2) fund the Series Reserve Account in respect of the Notes and (3) for general corporate purposes. The financing is consistent with DBRS’s expectations incorporated in the November 2016 confirmation of the Company’s ratings.

The Notes have a maturity date of June 1, 2033, and rank pari passu with all other senior obligations of 407. Correspondingly, the “A” rating and Stable trend are consistent with the ratings and trend currently assigned to the Company’s senior debt.

For 2016, total trips were up by 2.7%, while vehicle kilometres travelled increased by 4.9%, compared with 2015. Average trip length also increased by 2.2%, attributable to the opening of 407 East Extension in June 2016, and the easing of congestion at Brock Road, both of which have enabled drivers to travel longer distances without rerouting. Higher tolls and increased patronage contributed to a 13.2% revenue increase in 2016, while operating expenses decreased by 7.7%, mainly as a result of the partial reversal of the provisions for class action suits that were settled in 2016 in a smaller amount. Correspondingly, full-year EBITDA for 2016 increased by 17.3% compared to 2015. No congestion payments were incurred during the year.

As of December 31, 2016, the senior debt service coverage ratio, including shadow amortization, was 2.5 times(x) while junior and senior interest coverage was 3.0x, slightly improved from the previous year. DBRS expects that the Company will issue up to $500 million of net debt during 2017, while coverage metrics are expected to remain comfortably above the 1.7x and 2.0x targets agreed upon with DBRS at the current rating levels.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodology is Rating Public-Private Partnerships, which can be found on our website under Methodologies.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.