DBRS Morningstar Confirms Maritime Link Financing Trust at AAA, Stable Trend

DBRS Limited (DBRS Morningstar) confirmed the credit rating of the 3.50% Bonds, Series A (the Bonds) issued by Maritime Link Financing Trust (ML Financing Trust or the Issuer) at AAA with a Stable trend. The Issuer is a special-purpose funding trust established to facilitate the financing of the Maritime Link Transmission Project (the Project). The Bonds of $1.3 billion will fully amortize by the December 1, 2052, maturity date. The credit rating is based on the unconditional and irrevocable federal loan guarantee (the Guarantee) provided by the Government of Canada (Canada or the Guarantor). This credit rating action follows DBRS Morningstar’s confirmation of Canada’s sovereign credit rating at AAA with a Stable trend (see DBRS Morningstar’s related press release dated September 8, 2023).

DBRS Morningstar notes that the Guarantee met its criteria for a flow-through of Canada’s sovereign credit rating to the Bonds. The Guarantee constitutes the irrevocable, unconditional, absolute, and continuing obligation of Canada. There is no requirement to exhaust recourse against the Issuer before (1) bondholders are entitled to the payment from Canada; (2) all defences are waived by the government and subrogation rights are postponed as long as the guaranteed obligations are still outstanding; and (3) no amendment of the Guarantee is permitted, except by agreement with the Indenture Trustee. Furthermore, release of the Guarantor is permitted only when all of its obligations are fully repaid. DBRS Morningstar expects the Bonds’ credit rating will continue to move in tandem with Canada’s sovereign credit rating, irrespective of the Project’s performance. Any upgrade or downgrade is expected to follow a similar credit rating action on Canada.

The Project is a 500-megawatt electric transmission line connecting Nova Scotia to Newfoundland and Labrador across the Cabot Strait. ML Financing Trust’s sole business is to issue the Bonds and on-lend the proceeds to NSP Maritime Link Inc. (NSPML), the project company responsible for construction and operations. Upon achieving the in-service date, debt service is to be funded by the principal and interest received on the back-to-back loan to NSPML, which in turn collects revenue from Nova Scotia Power Inc. (Nova Scotia Power; rated BBB (high) with a Stable trend by DBRS Morningstar) and, in turn, Nova Scotia’s ratepayers. The Project achieved its in-service status on January 15, 2018. The Project started to transmit the Nova Scotia block of energy since August 2021, as the Muskrat Falls hydro plant started to generate sufficient electricity power. NSPML has been collecting revenue from Nova Scotia Power and, in turn, from Nova Scotia’s ratepayers since Q1 2018. The amount is more than sufficient to service the Project’s debt obligations. The Nova Scotia Utility and Review Board (UARB) approved the final rate application in February 2022. In 2023, the monthly holdback of $2 million required by the UARB has started to be released monthly when at least 90% of contracted energy is delivered, which has been more consistent with the completion and commissioning of the Muskrat Falls hydro project. This process is currently under review by the UARB.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS

Rating actions on Canada are likely to have an impact on this rating. ESG factors that have a significant or relevant effect on the credit analysis of Canada are discussed separately at https://www.dbrsmorningstar.com/issuers/2100.

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/416784 (July 4, 2023).

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

DBRS Morningstar applied the following principal methodology:
-- DBRS Morningstar Global Criteria: Guarantees and Other Forms of Support (March 28, 2023), https://www.dbrsmorningstar.com/research/411694

The credit 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.

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 credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

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 credit ratings are under regular surveillance.

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

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