DBRS 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 a Stable trend. DBRS also confirmed ProjectCo’s Senior Long Term Bonds at A (low) with a Stable trend. ProjectCo is a special-purpose vehicle created to design, build, finance, and maintain 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 Final Completion is expected to be achieved by early 2022, with some minor commissioning documentation works to be completed that are not expected to materially affect the performance of the Project. For the nine months ended September 2021, the actual deductions have been minimal, well below any default thresholds under the PA or the Service Contract. DBRS Morningstar notes that the deductions are fully passed down to ENGIE Services. As per the 2020 Energy Analysis Report, electricity consumption was 22.5% lower than the targeted values. Overall, increased gas consumption, partially offset by a lower electricity consumption resulted in a $4,155 net energy consumption painshare in 2020, which has been accepted by the City and passed down to the Service Provider. The Coronavirus Disease (COVID-19) pandemic has not materially affected the Project.

The debt service coverage ratio (DSCR) for the 12 months ended September 2021 was reported at 1.15 times (x), which, while consistent with expectation, is slightly lower than the same-period DSCR of 1.18x in 2020, mainly as a result of prepayments of certain expenses during this time. Estimated year-end DSCR is projected to be 1.14x, which is in line with the long-term project forecast of 1.15x.

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” 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.

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.

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

The principal methodology is Rating Public-Private Partnerships (August 19, 2021; https://www.dbrsmorningstar.com/research/383244), which can be found on dbrsmorningstar.com under Methodologies & Criteria. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021; https://www.dbrsmorningstar.com/research/373262).

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.

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

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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