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Rating Action:

Moody's assigns definitive Aaa rating to debt issued by Muskrat Falls/Labrador Transmission Assets Funding Trust and Labrador-Island Link Funding Trust; outlook stable

Global Credit Research - 18 May 2017

Approximately C$2.9 billion of debt securities affected

Toronto, May 18, 2017 -- Moody's Investors Service has assigned definitive Aaa senior unsecured debt ratings to both Muskrat Falls/Labrador Transmission Assets Funding Trust's ("MFLTA Trust") C$1.85 billion aggregate debt issuance and Labrador-Island Link Funding Trust's ("LIL Trust") C$1.05 billion aggregate debt issuance, based on the second Federal Loan Guarantee which has been issued by the Government of Canada. The rating outlook is stable for both issuers.

RATINGS RATIONALE

The Aaa rating solely reflects the unconditional, irrevocable and absolute nature of the second Federal Loan Guarantee ("Second Guarantee") provided by Her Majesty the Queen in Right of Canada ("Canada", Aaa, Stable) which is used to provide credit support on the additional debt to be issued by Muskrat Falls/Labrador Transmission Assets Funding Trust (C$1.85 billion) and on all debt to be issued by Labrador-Island Link Funding Trust (C$1.05 billion). The terms and conditions of the Second Guarantee (together, the "Guarantees") are virtually identical to those of the original Federal Loan Guarantee ("Original Guarantee") and form the basis for the assignment of the Aaa ratings on the new bond issuances. Our assessment is based on the fact that the terms and conditions of the Second Guarantee satisfy all of Moody's criteria for full credit substitution which allows for equalizing the rating of the new bonds issued by Muskrat Falls/Labrador Transmission Assets Funding Trust and by Labrador-Island Link Funding Trust with the rating of Canada. The obligations of Canada under the Second Guarantee are not conditional on nor impacted, in any way, by the performance of the projects.

Detailed Rating Considerations

The ratings of the new bonds issued by Muskrat Falls/Labrador Transmission Assets Funding Trust and Labrador-Island Link Funding Trust are equalized with the rating of Canada because we believe that the Guarantees provide a strong, binding commitment in support of the two funding trusts' debt instruments. Some of the key elements of the Second Guarantee are:

• It is an irrevocable, absolute and unconditional guarantee

• It promises full and timely payment of the underlying obligations

• It covers payment, not merely collection

• It covers preference payments and other payments that have been "clawed back"

• It contains a comprehensive waiver of defenses

• Its terms extend as long as the term of the underlying obligation

• There are protections against amendments to or assignments of the Second Guarantee such that the Second Guarantee will not weaken as a result of any such potential events

We note that the payments under the Second Guarantee are payable out of the Consolidated Revenue Fund of Canada without further authorization by the Canadian Parliament.

Each of the two funding trusts has put in place separate but identical master trust indentures ("Trust Indentures") with each document being identical to the other (apart from necessary changes related to the different names and the different caps applicable to the amount of debt that can be issued under each Trust Indenture with the rated debt expected to represent the maximum amount that can be issued under each Trust Indenture). Each Trust Indenture will allow each trust to issue obligation bonds. The debt issued under all of the Trust Indentures will be unconditionally, irrevocably and absolutely guaranteed by the Government of Canada as to principal, interest, and any other amount due under the debt instruments. The sole event of default under the Trust Indenture occurs if the Issuers fails to pay when due any principal, interest, premium (if any) or other amount due and payable and neither the Issuers nor Canada as guarantor pays such amount due within five business days following written demand.

Rating Outlook

The stable outlook for the issuer reflects the outlook for Canada.

What Could Change the Rating - Up

The bonds' ratings reflect the current rating assigned to Her Majesty the Queen in Right of Canada (Aaa, Stable), which is the highest rating in Moody's rating scale.

What Could Change the Rating - Down

The ratings will change in lockstep with the rating of Canada (Aaa, Stable), absent any changes to the Second Guarantee that could weaken its terms and conditions or any evidence of delays in making payments under the Second Guarantee.

USE OF PROCEEDS

Proceeds from the bonds to be issued will be lent to the project companies by the MFLTA Trust and LIL Trust to fund additional construction capital costs to complete the construction of the Muskrat Falls hydroelectric station project.

ISSUERS PROFILE

Muskrat Falls/Labrador Transmission Assets Funding Trust and Labrador-Island Link Funding Trust are two funding trusts whose sole purpose is to raise financing and on-lend the proceeds of such financing to three project companies responsible for developing, designing, building, financing and ultimately operating a new 824 MW hydro-electric generating station on the Lower Churchill river in Labrador and associated transmission lines. The project companies will be owned and controlled by Nalcor Energy, a corporation 100% owned by the Province of Newfoundland & Labrador (Aa3, negative).

Nalcor Energy and the Province of Newfoundland and Labrador have worked on the development of the Muskrat Falls Project for several years with sanction having occurred in 2012. The project involves four distinct and separate sub-elements:

1) The development, design, construction and ultimately the operations of a new 824MW hydro-electric generating station at Muskrat Falls on the Churchill River. That specific project will be carried out by Muskrat Falls Corporation ("MF Projectco").

2) Two 250 km High Voltage HVAC transmission lines ("Labrador Transmission Assets") that will connect the Muskrat Falls generating station to the existing Churchill Falls hydro generating station: that part of the project will be undertaken by Labrador Transmission Corporation ("LT Projectco"). Both MF Projectco and LT Projectco will obtain their debt funding through Muskrat Falls/Labrador Transmission Assets Funding Trust.

3) Another High Voltage HVDC, 1,100 km long transmission line (the Labrador-Island Link) that will transport power from the Muskrat Falls generating station to the St. John's area in Newfoundland: that part of the project will be carried out by Labrador-Island Link Limited Partnership ("LIL Projectco"). LIL Projectco will obtain its debt funding indirectly through Labrador-Island Link Funding Trust.

4) Another component of the project, the Maritime Transmission Link, which will connect Newfoundland to Nova Scotia, will be developed and financed separately by Emera Inc.

The projects are currently under construction with the Labrador-Island Link project expected to be in-service by Q2 2018 and the Muskrat Falls generating station expected to achieve first power in Q3 2019 and full power in mid-2020.

The principal methodology used in these ratings was Rating Transactions Based on the Credit Substitution Approach: Letter of Credit-backed, Insured and Guaranteed Debts published in December 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 rating has 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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