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Rating Action:

Moody's assigns A2 rating to Windsor Essex Mobility Group's senior secured bonds; the outlook is stable

Global Credit Research - 29 Sep 2017

Approximately CAD $207.7 million of rated debt affected

Toronto, September 29, 2017 -- Moody's Investors Service, ("Moody's") has assigned an A2 senior secured rating to the CAD [207.7] million senior secured amortizing bond to be issued by Windsor Essex Mobility Group GP ("Project Co" or the "Issuer"). The rating outlook is stable.

The proceeds from the bond issue will be used primarily to repay the existing bank indebtedness, settle the interest rate swap arrangements, pay transaction costs related to the bond issue and provide an equity distribution to the equity sponsor. The commercial close and bonds pricing date for the refinancing transaction is expected to be October 3, 2017 at which point the bonds issuance amount will be finalized.

Windsor Essex Mobility Group GP is a single purpose general partnership which entered into a Project Agreement with Ontario Infrastructure Projects Corporation acting as agent of Her Majesty The Queen under the Province of Ontario (Aa2, stable) to design, build, finance, operate, maintain and rehabilitate the Rt. Honourable Herb Gray Parkway, formerly known as Windsor Essex Parkway (the "Project" or "Parkway) for a project term expiring in 2044. The 34 year concession term of the Concession Agreement commenced in December 2010 with the Project having reached substantial completion in October 2015.

RATINGS RATIONALE

The A2 senior secured rating primarily reflects the following considerations:

Typical Canadian availability payment transportation P3 with a strong off-taker counterparty: The Project Agreement is a standard P3 project agreement template that the Ontario Infrastructure Projects Corporation uses for this type of transaction.

Knowledgeable sponsors with extensive experience in P3 road transactions: The Issuer is owned by subsidiaries of ACS Group, Acciona S.A. and Fluor Corporation which are all considered global leaders in the development and operations of road infrastructure projects.

No construction risks remain for the Issuer: The Project achieved substantial completion in October 2015 and final completion in March 2017. The Issuer has demonstrated a strong operating history to date with minimal deductions in the first 2 years of operations.

Straightforward operating risk with rehabilitation risk retained by the Issuer: Asset is relatively simple with standard requirements to operate and maintain an 11 km long segment of freeway and corresponding feeder roads and approach ramps (approximately 124.5 lane-km of total paved roads). Rehabilitation obligations are retained by the Issuer which is not unusual for P3 road transactions.

Supportive contractual structure for the first 15 years of the operating period: The operating and maintenance services are currently being provided by DeAngelo Brothers Inc., an experienced player in the transportation industry in North America. However, the contract only covers the first 15 years of the operating term under the Project Agreement. The environmental obligations are currently provided by AMEC Foster Wheeler for the first 15 years of the operating term.

Average financial metrics for a P3 transaction with standard financial covenants: Average financial metrics (at Minimum/Average DSCRs of 1.29x/1.31x and minimum cash break even ratio of 20%) for a P3 road project of this nature. The transaction is also strengthened by a significantly longer equity tail in comparison to other P3 transactions.

Relatively weak financing structure for mitigation of lifecycle risk: The risks associated with the self-perform nature of the rehabilitation obligations are typically mitigated by a cash funded Major Maintenance Reserve Account. The lack of an initial balance in the MMRA represents a significant weakness in the financing structure, however, it is partially mitigated through the current nature of the rehabilitation payments and sufficient review mechanisms including look forward tests which are contemplated in years 5, 10, 15 and 20 which provide additional protection against unexpected increases to the rehabilitation costs of the asset.

RATINGS OUTLOOK

The outlook is stable reflecting our expectation that Project Co will continue to perform well and to generate the forecasted debt service coverage ratios.

FACTORS THAT COULD LEAD TO AN UPGRADE

The rating has limited ability to be upgraded as the expectation is for operating and financial performance tracking the forecast.

FACTORS THAT COULD LEAD TO A DOWNGRADE

The DSCR profile decreases to a minimum/average DSCR that is below 1.26x/1.27x owing to the movements of underlying rates prior to the pricing date of the transaction; the rating of the Province of Ontario deteriorates significantly such that it constrains the credit quality of the Issuer; evidence of poor service delivery resulting in the accumulation of failure points leading to an increased likelihood of Project Co default under the Project Agreement; the relationship between Project Co and the offtaker deteriorates materially; the rehabilitation cost assumptions are determined to be inadequate, resulting in significant cost overruns during the operating period and diminished minimum/average DSCRs of 1.26x/1.27x during the operating period; and the divestiture of the Issuer by the equity sponsors to an ownership group which is significantly less experienced in the management of similar road projects.

The principal methodology used in these ratings was Operational Privately Financed Public Infrastructure (PFI/PPP/P3) Projects published in March 2015. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Louis Ko
Vice President - Senior Analyst
Project Finance Group
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

A.J. Sabatelle
Associate Managing Director
Project Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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