DBRS Morningstar Confirms Integrated Team Solutions SCOC Partnership at A (low), Stable Trend

DBRS Limited (DBRS Morningstar) confirmed the Issuer rating of Integrated Team Solutions SCOC Partnership (ProjectCo) at A (low) with Stable trend. DBRS Morningstar also confirmed ProjectCo’s Senior Long Term Bonds at A (low) with Stable trend. ProjectCo is a special-purpose vehicle (SPV) created to design, build, finance, and maintain (DBFM) the Phase One Civic Operations Centre (the Project) under a 27-year project agreement (PA) with the City of Saskatoon (the City).

The rating is underpinned by the generally satisfactory performance and the creditworthiness of the contractors, as well as suitable security packages. ProjectCo dropped down, on a back-to-back basis, all the design, construction, and commissioning obligations under the PA to EllisDon Design Build Inc. (the Construction Contractor) through a fixed-price, date-certain Construction Contract and all service risks and responsibilities to ENGIE Services Inc. (ENGIE Services or the Service Provider; formerly Cofely Services Inc.) over the entire service phase through a fixed-price Service Contract. The Service Provider’s performance is supported by a parent company guarantee from ENGIE Energy Services SA (formerly GDF Suez Energy Services SA), which is considered to be an investment-grade entity.

The project reached Substantial Completion on December 31, 2016, with the Final Completion expected to be achieved by the end of 2020. For the nine months ending September 2020, the actual deductions have been minimal, well below any default thresholds under the PA or the Service Contract. DBRS Morningstar also notes that the deductions have been trending down since the beginning of operations and are fully passed down to ENGIE Services. As per the 2019 Energy Analysis Report, electricity consumption was 23.1% lower than the targeted values. Although gas consumption was 51.0% higher than the targeted values, the overrun has improved since 2019. The service provider is currently working on improving the efficiency of gas consumption. Overall, this resulted in $7,442 net energy consumption pain share in 2019, which has been passed down to the Service Provider. The project has not been materially impacted by the Coronavirus Disease (COVID-19) pandemic.

The debt-service coverage ratio (DSCR) for the 12 months ending September 2020 was reported at 1.18 times (x), which is higher than the same-period DSCR of 1.14x in 2019. This is because facility management payment invoicing in 2019 was relatively inconsistent, meaning more payments were made due to the timing of the receipts. The forecast minimum DSCR of 1.15x and equity lock-up DSCR of 1.12x are lower than typically seen for availability-based public-private partnership projects in the “A” rating range; however, the operating and maintenance resilience of 53.3% and lifecycle resilience of 46.9% are supportive of the rating and reflective of a fairly simple suite of services to be provided. Negative rating pressure could result if there is material deterioration of the operating and financial performance of the Project. Given the fixed nature of the availability-based cost and revenue structure, DBRS Morningstar believes that a positive rating action is unlikely.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

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

The principal methodology is Rating Public-Private Partnerships (August 19, 2020), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

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@dbrsmorningstar.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.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.

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

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