DBRS Morningstar Confirms Ratings on Mountain View Partners GP at A (low) With Stable Trends

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and the $380.8 million Series A Bonds (the Bonds) rating of Mountain View Partners GP (MVP or ProjectCo) at A (low). Both trends are Stable. ProjectCo is the special-purpose entity created to design, build, finance, operate, and maintain the Southwest Calgary Ring Road Project (the Project) under a 35-year project agreement (PA) with the Province of Alberta (the Province; rated AA (low) with a Stable trend by DBRS Morningstar).

The Project is in its tenth month of operations, having achieved the Priority New Infrastructure (PNI) Traffic Availability on October 1, 2020, and the Remaining New Infrastructure (RNI) Traffic Availability on October 1, 2021, as scheduled. While there are still some remaining deficiencies, ProjectCo indicated that these deficiencies are relatively minor and do not affect the function or safety of the roadways. Construction Completion is expected to be achieved by October 2022.

Upon RNI Traffic Availability, the Project received the Final Province Progress Payment and the remaining balance of a total $145.1 million RNI Progress Payments from the Province, and the reserve accounts including the debt service reserve accounts (DSRA) have been fully funded. Full availability payments started on October 1, 2021, and will continue until the PA is either terminated or expires on September 30, 2051. ProjectCo retained lifecycle and handback obligations, as detailed in the PA, but passed down the O&M work to Alberta Highway Services Ltd. (AHSL or the Operator) through a fixed-price O&M contract. DBRS Morningstar notes that because lifecycle obligation is retained by ProjectCo, it introduces an element of risk to the Project. Although a three-year forward-looking rehabilitation reserve account was maintained since October 1, 2020, which mitigates some of the risk, persistently higher-than-expected traffic volume or faster-than-expected deterioration of the infrastructure could drive lifecycle costs up considerably (beyond the reserve amount), without any compensation coming from the Government of Alberta Ministry of Transportation (Alberta Transportation). If that were to occur, it could potentially affect the financial metrics significantly.

Since the achievement of PNI Traffic Availability, AHSL has been providing routine maintenance activities, such as snow removal, debris removal, temporary sign reinstallations, and light outage repairs. In addition, there have been no material payment deductions or nonconformance issues. According to ProjectCo, the relationship with Alberta Transportation and AHSL remains positive.

DBRS Morningstar notes that ProjectCo and the Province have reached an agreement to resolve the utility relief event claims. The Claims Resolution Agreement (CRA) was fully executed on August 31, 2021. The Senior Creditor’s Technical Advisor (SCTA) has confirmed that the changes in the CRA will not materially change the risk profile of the Project.

For the first nine-month operating period since October 2021, the debt service coverage ratio (DSCR) was 1.75 times (x). The minimum DSCR was projected to be 1.20x, which is standard for availability-based public-private partnership (PPP) projects rated in the “A” range. The equity lockup DSCR is set as 1.135x, which is lower than is typically seen, but is considered to be appropriate for the rating, given the O&M cost resilience of 45.4% and lifecycle cost resilience of 33.0% based on the updated financial model following the execution of CRA.

DBRS Morningstar notes that a material deterioration of the financial metrics may result in a negative rating action. Given the availability-based payment structure and little potential for meaningful improvement in the financial forecast, a rating upgrade is considered unlikely.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/ Social/ Governance factors that had a significant or relevant effect on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

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 (May 17, 2022; https://www.dbrsmorningstar.com/research/396929).

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.

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

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting 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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