DBRS Morningstar Confirms Plenary Justice Okanagan LP at A (low) with Stable Trends

DBRS Limited (DBRS Morningstar) confirmed Plenary Justice Okanagan LP’s (ProjectCo) Issuer Rating and the rating of the Series A Senior Notes issued by ProjectCo at A (low) with Stable trends. ProjectCo is the special-purpose entity created to design, build, finance, and maintain the $185.5 million Okanagan Correctional Centre under a 32.6-year Project Agreement signed between ProjectCo and the Province of British Columbia (the Province; rated AA (high) with a Stable trend by DBRS Morningstar). The rating confirmations reflect the achievement of Final Completion (September 2019), the solid experience of Honeywell Limited (Canada) (the Service Provider), the straightforward service obligations, and the supportive resiliencies.

As stipulated in the Services Contract, at the end of each five-year period throughout the Operating Period, ProjectCo and the Service Provider, along with an independent inspector, will conduct a Joint Technical Review (JTR). This JTR took place starting on March 2022, and the analysis concluded that the facility is in good to excellent condition and is being operated at a level consistent with industry standards and as stipulated in the facility services scope of work. There were no perceived urgent/critical repairs that posed any undue risk to the facility occupants. As a result, the recommendations for repair, replacement, and refurbishment projects to be performed within the next five years are limited to proactive replacements.

Operations have continued smoothly during the sixth year without material deductions. Weather conditions during 2022 were extreme, both heat and cold, and they were managed well. The performance of the Year 6 Life Cycle items is being monitored according to the five-year Life Cycle Plan. For the third energy year, after an evaluation of energy usage against the Adjusted Energy Target, the overall consumption resulted in an energy gainshare of approximately $12,000, which was passed down to the Service Provider. The fourth energy year started from October 1, 2022.

The actual debt service coverage ratio (DSCR) as of September 30, 2022, was 1.22 times (x) per the Compliance Certificate. The projected financial metrics remain unchanged and adequate for the rating, with a minimum and average DSCR of 1.21x, as well as operating and maintenance and lifecycle breakeven metrics of 44% and 46%, respectively. The relationship between ProjectCo, the Service Provider, and the Province remains collaborative, with no material issues reported.

While not currently included in DBRS Morningstar’s expectations, material deductions and/or a Service Provider replacement could lead to a negative rating action. The potential for credit upside remains limited at the current rating given the fixed nature of the revenue stream.

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 applicable to the ratings is Global Methodology for Rating Public-Private Partnerships (August 30, 2022; https://www.dbrsmorningstar.com/research/402155).

The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

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.

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.

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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