DBRS Morningstar Assigns Rating of BBB With a Stable Trend to Teranet Holdings LP’s New Debt Issue

DBRS Limited (DBRS Morningstar) assigned a rating of BBB with a Stable trend to the $500 million Series 2022-1 Senior Secured Bonds (the Senior Bonds) issued by Teranet Holdings LP (the Company; rated BBB with a Stable trend by DBRS Morningstar). The Senior Bonds have been issued under the Master Trust Indenture dated December 16, 2010, as amended by a fourteenth supplemental indenture dated February 23, 2022, and will mature on February 23, 2029. The rating assigned to this newly-issued debt instrument is based on the ratings of an already-outstanding debt series of the above-mentioned debt instrument.

The intended use of the proceeds from the Senior Bonds issue is early redemption of the $200 million Series 2015-1 Senior Secured Bonds, which mature on November 18, 2022, with the excess amount to be used for general corporate purposes. The Senior Bonds rank pari passu with all other senior secured and unsubordinated obligations of the Company. As a result, the rating is consistent with the ratings that DBRS Morningstar previously assigned to the Company’s similarly ranked outstanding senior secured bonds.

Ontario witnessed strong housing registration volumes following the pandemic-related slowdown in H1 2020. That momentum continued in 2021 with registration volumes 33.6% higher in in the first nine months of 2021 compared with the same period in 2020. The debt service coverage ratios (DSCRs) including and excluding Manitoba, as per the Master Trust Indenture, were 2.62 times (x) and 2.49x, respectively, as of September 30, 2021. Under the DBRS Morningstar base case, after 24% higher-than-normal growth estimated in 2021, Ontario registration volumes are forecast to decline 16% in 2022 and increase thereafter at a compound annual growth rate of 3.3% over the next five years. The minimum DSCRs including and excluding Manitoba, as per the Master Trust Indenture, are forecast to be 1.85x and 1.77x, respectively, with the minimum DSCRs occurring in 2022. As the debt is interest only, DBRS Morningstar conducted a refinancing analysis and noted that the metrics are supportive of the additional debt.

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.

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).

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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