DBRS Morningstar Assigns Provisional Rating of AAA with a Stable Trend to the CAD 1.0 Billion Bonds To Be Issued by Muskrat Falls/Labrador Transmission Assets Funding Trust

DBRS Limited (DBRS Morningstar) assigned a provisional rating of AAA with a Stable trend to a series of bonds of CAD 1,000 million in total (the 2022 Guaranteed Senior Bonds) to be issued by Muskrat Falls/Labrador Transmission Assets Funding Trust (the Issuer). The proceeds of the 2022 Guaranteed Senior Bonds will be used to refinance the Issuer’s existing bonds due in the next few years to lower the overall funding cost. The maturities of the 2022 Guaranteed Senior Bonds will be staggered with an expected final maturity date of June 1, 2057. The Issuer was initially established in 2013 as a funding trust to facilitate the financing of the Muskrat Falls Project (the Project), an 824-megawatt hydroelectric power-generating facility and the associated transmission lines currently being developed in Newfoundland and Labrador.

The 2022 Guaranteed Senior Bonds will be unconditionally and irrevocably guaranteed by the Government of Canada (Canada) under a new federal loan guarantee agreement (FLG3). DBRS Morningstar recently confirmed Canada’s rating at AAA with a Stable trend (please refer to DBRS Morningstar’s press release “DBRS Morningstar Confirms Government of Canada at AAA Stable” dated March 11, 2022, for details). The FLG3 is virtually identical to the prior 2013 and 2017 federal loan guarantee agreements (FLG1 and FLG2). DBRS Morningstar notes that all three guarantees (FLG1, FLG2, and FLG3) have met DBRS Morningstar’s criteria for a flow-through of Canada’s sovereign rating to the 2013, 2017, and 2022 Guaranteed Senior Bonds. In particular, the guarantee is an irrevocable, unconditional, absolute and continuing obligation of Canada. There is no requirement to exhaust recourse against the Issuer before it being entitled to payment from Canada; all defences are waived by Canada and subrogation rights are postponed as long as the guaranteed obligations are outstanding and no amendment of the guarantee is permitted except by agreement with the trustee. Furthermore, the release of the guarantor is only permitted once all obligations are repaid in full. The ratings of the 2013, 2017, and 2022 Guaranteed Senior Bonds will move in lockstep with Canada’s sovereign rating, irrespective of the Project’s underlying risk. DBRS Morningstar expects to finalize the ratings on the 2022 Guaranteed Senior Bonds on the settlement date, which is expected by the end of March 2022.

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 DBRS Morningstar Criteria: Guarantees and Other Forms of Support (May 31, 2021; https://www.dbrsmorningstar.com/research/379424), 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.

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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