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15 Jun 2016
Approximately CAD $556.5 million of rated debt affected
Toronto, June 15, 2016 -- Moody's Investors Service has assigned a definitive A2 senior secured
rating to the CAD 556.5 million senior secured amortizing bond
to be issued by Sea-to-Sky Highway Investment Limited Partnership
("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.
Sea to Sky Highway Investment Limited Partnership is a single purpose
limited partnership which entered into a Concession Agreement with the
BC Transportation Financing Authority and the Ministry of Transportation,
as an agent of Her Majesty The Queen in Right of the Province of British
Columbia (Aaa stable), to design, build, finance,
operate, maintain and rehabilitate the Sea-to-Sky
Highway (the "Project") for a project term expiring on March 31,
2030. The 25-year concession term of the Concession Agreement
commenced on June 3, 2005 with the Project having reached final
completion on June 30, 2010.
The A2 rating reflects the following considerations: the fact that
Project Co is a typical operating public-private partnership with
a credit-worthy counterparty, the importance of the Project
for the region as the only direct route between Vancouver and Whistler,
straightforward operating risk supported by a fixed price O&M contract
with an experienced operator, the stability of cash flows as project
revenues are predominantly availability based with additional payments
determined by safety records and end of term conditions, and a well-established
operating history with zero payment deductions since final completion
of the Project in 2010.
The Issuer, however, is exposed to some operating risks over
the remaining term of the concession, including traffic volume risk
related to the shadow toll structure included in the payment mechanism
of the Concession Agreement, full debt repayment contingent on the
receipt of the End of Term Payment based on the final asset conditions
and relatively weak projected financial metrics (minimum 1.15x
and 1.19x average annual debt service coverage ratios as calculated
by Moody's which includes all movements to and from the reserve accounts).
These risks are well mitigated by a lengthy traffic history with demonstrated
consistent growth and a base case traffic forecast prepared by a reputable
firm, look forward mechanisms in the O&M Contract and a solid
cash break-even ratio at over 34.6% to manage any
deductions and/or unexpected increased costs over the remaining term.
The Issuer's financial profile also demonstrated good resiliency to changes
in the traffic forecast as indicated by Project Co's ability to generate
minimum/average DSCRs of 1.13x/1.17x should traffic projections
decline by 5% and minimum/average DSCRs of 1.11x/1.15x
should traffic projections decline by 10%.
The outlook is stable reflecting our expectation that Project Co will
continue to perform well and to generate the forecasted debt service coverage
FACTORS THAT COULD LEAD TO AN UPGRADE
- The rating has limited ability to be upgraded as the expectation
is for operating and financial performance to closely track the forecast;
- The rating could face upward pressure if the actual vehicle usage
greatly exceeds the forecast and results in a significantly stronger DSCR
FACTORS THAT COULD LEAD TO A DOWNGRADE
- Poor service delivery leads to an increased likelihood of the
Service Provider defaulting under the service agreement and/or Project
Co defaulting under the project agreement with the province of British
- The relationship between Project Co and the Project parties materially
- The rehabilitation cost assumptions are determined to be inadequate
and thus jeopardizes the receipt of the full amount of the End of Term
- The rating of the Province of British Columbia deteriorates significantly
such that it constrains the credit quality of the Issuer;
- The usage rate of the Project is significantly lower than the
base case assumptions and causes pressure on the debt service coverage
- The debt service coverage ratio falls below 1.15x on a
The principal methodology used in this rating was Operational Privately
Financed Public Infrastructure (PFI/PPP/P3) Projects published in March
2015. Please see the Ratings Methodologies page on www.moodys.com
for a copy of this methodology.
For more information on the key credit drivers for the Sea to Sky transaction,
please refer to the Issuer-In-Depth Pre-Sale Report
entitled Sea to Sky Highway Investment Limited Partnership, which
can be found on moodys.com.
For ratings issued on a program, series or category/class of debt,
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Vice President - Senior Analyst
Project Finance Group
Moody's Canada Inc.
70 York Street
Toronto, ON M5J 1S9
Associate Managing Director
Project Finance Group
Moody's assigns definitive A2 rating to Sea to Sky Highway Investment Limited Partnership's senior secured bonds; the outlook is stable
Moody's Canada Inc.
70 York Street
Toronto, ON M5J 1S9
No Related Data.
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