DBRS Morningstar Confirms Ratings on Strait Crossing Development Inc. at BBB (low), Stable

DBRS Limited (DBRS Morningstar) confirmed Strait Crossing Development Inc.’s (SCDI or the Company) Issuer Rating and 6.17% Revenue Bonds rating at BBB (low). All trends are Stable.

The confirmation is primarily based on the resiliency of traffic fundamentals, continued good expense management, ongoing debt reduction and improved financial metrics.

In 2018, traffic growth was flat with a volume of 864,434 vehicles, but slightly exceeded budget by 0.5%. As per Statistics Canada, Prince Edward Island’s (upgraded to “A” with a Stable trend by DBRS Morningstar on August 15, 2019) gross domestic product (GDP) increased by 2.8% in 2018, the highest growth among all Canadian provinces, while GDP rose by 2.0% across Canada over the same period. A $0.75 toll increase for two-axle vehicles and good cost management continue to support revenues and EBITDA, which rose by 1.61% in 2018 compared with 2017. Tightly controlled expenditures and revenue growth resulted in a DBRS Morningstar-calculated debt service coverage ratio (DSCR) of 1.40 times (x) for F2018 compared with 1.39x for 2017. SCDI reported a F2018 DSCR, as defined in the Master Trust Indenture, of 1.35x which is an improvement over the F2017 DSCR of 1.33x. Through the first nine months ending September 30, 2019, traffic at the bridge continued to outperform with a volume of 706,642 vehicles, which exceeded budget by 1.21% and surpassed the prior-year volumes by 1.72%. Corresponding toll revenues were 1.40% ahead of budget and 3.65% higher than the prior-year period. During the same period, debt fell to $233.8 million and SCDI reported a DSCR of 1.37x.

DBRS Morningstar expects that, barring any unforeseen material changes to current economic conditions, SCDI should continue to report stable or improving traffic and financial metrics that are consistent with the current ratings. Over time, if sustainable DSCRs exceeding 1.5x are achieved, DBRS Morningstar may take a positive rating action. While DBRS Morningstar currently views the probability of a negative rating action as low, the following factors could lead to a negative change in the Company’s credit ratings: significant decline in traffic or change in traffic mix such that revenues fall materially; incurrence of large unexpected maintenance or rehabilitation items; and a deterioration in the DBRS Morningstar-calculated DSCR to 1.10x or lower. DBRS Morningstar also notes that, if the General Revenue Account (GRA) balance declines significantly, any potential rating upside associated with improving financial performance could be pushed further into the future. Absent financial performance improvement, a materially lower GRA balance could put negative pressure on the ratings.

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

The principal methodology is Rating Public-Private Partnerships, which can be found on dbrs.com under Methodologies & Criteria.

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 under Related Documents or by contacting us at info@dbrs.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

DBRS Morningstar will publish a full report shortly that will provide addi¬tional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrs.com.

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

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