DBRS Morningstar Changes Trends to Stable, Confirms Ratings on Series B and Series C First Mortgage Bonds Issued by Bow Centre Street LP; Discontinues Series A Bonds

DBRS Limited (DBRS Morningstar) changed the trends to Stable from Negative and confirmed the ratings on the following first mortgage bonds (the Bonds) issued by Bow Centre Street Limited Partnership (the Issuer):

-- Series B Secured Bonds at BBB (low) (sf)
-- Series C Secured Bonds at BBB (low) (sf)

DBRS Morningstar also discontinued the ratings on the Series A Secured Bonds due to repayment.

The rating confirmations reflect the overall performance of the transaction, which remains in line with DBRS Morningstar’s expectations since the last review. The Bonds are secured by the Issuer’s ownership interest in The Bow (the Property) and have a total current outstanding balance of $501.2 million. While the Series A Secured Bonds were fully repaid on the maturity date of June 14, 2021, Series B and C Bonds have maturity dates of June 14, 2022, and June 13, 2023, respectively.

Built in 2012–13, The Bow is a 58-storey high-quality office building comprising more than 2.0 million square feet (sf) of rentable area in Calgary’s central business district. The entire building is leased to EnCana Leasehold Limited Partnership and fully guaranteed by Ovintiv Inc. (Ovintiv; rated BBB (low) with a Stable trend by DBRS Morningstar) for 25 years with rent escalations of 0.75% per annum (p.a.) for the office and retail rents, and 1.5% p.a. for parking income. The lease will expire on May 13, 2038. As of June 2021, approximately 40.0% of total office space was physically vacant and approximately 21.0% of total office space was occupied by subtenants or sub-subtenants. The current contractual office rent is $44.16 per sf (psf); however, as per CBRE’s “Calgary Downtown Office Marketview Q1 2021” report, the market vacancy and market rent for Class AA offices in Calgary’s central core submarket were 16.5% and $22.69 psf, respectively.

DBRS Morningstar notes that the ratings of the Bonds directly rely on Ovintiv continuing to pay above-market rents, therefore, any change to the rating of Ovintiv Inc. during the Bonds’ terms is expected to have an effect on the ratings of the Bonds.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.
All ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

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

The principal methodology is North American CMBS Surveillance Methodology (March 26, 2021), which can be found on dbrsmorningstar.com under Methodologies & Criteria. For a list of the structured-finance-related methodologies that may be used during the rating process, please see the DBRS Morningstar Global Structured Finance Related Methodologies document, which can be found on dbrsmorningstar.com in the Commentary tab under Regulatory Affairs. Please note that not every related methodology listed under a principal structured finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

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.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

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.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

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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