DBRS Morningstar Confirms CSS (FSCC) Partnership at A (low), Stable Trends

DBRS Limited (DBRS Morningstar) confirmed CSS (FSCC) Partnership’s (ProjectCo) Issuer Rating and the rating on ProjectCo’s $190.3 million Senior Secured Debt (the Bonds) at A (low) with Stable trends. ProjectCo is the special-purpose entity (SPE) created to design, build, finance, and maintain a new, approximately 665,000-square-foot Forensic Services and Coroner’s Complex (FSCC or the Project) under a 32.5-year public-private partnership with Ontario Infrastructure and Lands Corporation (OILC; formerly Infrastructure Ontario (IO)).

The Project has been performing well with no major operating concerns. The achievement of Substantial Completion on February 15, 2013, marked the commencement of the 30-year service phase, entailing routine maintenance of the facility and its electromechanical equipment as well as management of energy consumption and lifecycle maintenance to return the facility to OILC in a state of good repair upon expiry of the Project Agreement. Final completion was achieved on May 26, 2016.

Availability payments have been steady with minimal deductions and low failure points. For the 12 months ended November 30, 2022, there were approximately 326 failure points, while service deductions were negligible. DBRS Morningstar does not expect any significant changes in facility operations for the upcoming year and believes that operations will continue in a good state. ProjectCo indicated that the Service Provider and OILC maintained a good working relationship with no ongoing disputes and that there has been no impact of the Coronavirus Disease (COVID-19) on the operations. The lifecycle resiliency of 45% and the minimum debt service coverage ratio (DSCR) of 1.25 times (x) are supportive of the ratings.

The Service Provider is 10647802 Canada Limited, operating as Dexterra Integrated Facilities Management (Dexterra), with Fairfax Financial Holdings Limited (Fairfax; rated BBB (high) with a Positive trend by DBRS Morningstar) as the Service Guarantor. Dexterra became the Service Provider on March 12, 2018, after acquiring the interests of Carillion Services (FSCC) Inc. in the Service Contract. After the outstanding shares of 10647802 Canada Limited were acquired by Horizon North Logistics Inc. in May 2020, Fairfax indirectly holds only 49% interest in the Service Provider but continues as the Service Guarantor.

As per the latest compliance certificate, the Project’s (DSCR) was 1.25 x for the 12 months ended July 31, 2022. DBRS Morningstar notes that, while not expected, a prolonged period of operational difficulties that lead to substantial failure points or the Service Guarantor’s rating falling below investment grade could place negative pressure on the ratings. An improvement in resiliencies could lead to a positive rating action.

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. (May 17, 2022)

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

The principal methodology is Global Methodology for Rating Public-Private Partnerships (August 30, 2022), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

A description of how DBRS Morningstar analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/397223/interplay-of-global-corporate-finance-rating-methodologies-when-analyzing-corporate-finance-transactions

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.

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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