DBRS Morningstar Confirms Integrated Team Solutions SCOC Partnership Credit Ratings at A (low), Stable Trends

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Senior Long Term Bonds credit rating of Integrated Team Solutions SCOC Partnership (ProjectCo) at A (low) with Stable trends. ProjectCo is a special-purpose vehicle created to design, build, finance, and maintain the Phase One Civic Operations Centre (the Project), mainly consisting of a Transit Operations Facility and a Snow Management Facility, under a 27-year project agreement (PA) with the City of Saskatoon (the City).

The credit ratings are underpinned by the satisfactory performance and the relatively straightforward tasks during the service phase. ProjectCo dropped down, on a back-to-back basis, all service risks and responsibilities to EQUANS Services Inc. (EQUANS Services or the Service Provider; formerly ENGIE Services Inc.) over the entire service phase through a fixed-price Service Contract. The Service Provider’s performance is supported by a parent company guarantee from EQUANS US Inc. (formerly ENGIE Energy Services SA).

Final Completion was achieved on September 15, 2022. For the nine months ended September 2023, total actual deductions continue to be minimal, well below any default thresholds under the PA or the Service Contract. DBRS Morningstar notes that any deductions are fully passed down to EQUANS Services. Per the 2022 Energy Analysis Report, electricity consumption was 30.3% lower than the targeted values, although gas consumption was 45.2% higher than the targeted values. Overall, the lower electricity consumption, partially offset by the higher gas consumption, resulted in approximately $27,403 net energy consumption gainshare in 2022, which has been accepted by the City and passed down to the Service Provider. The debt service coverage ratio (DSCR) for the 12 months ended September 2023 was 1.16 times (x), in line with our expectation.

The forecast minimum DSCR of 1.15x and equity lock-up DSCR of 1.12x are lower than typically seen for availability-based public-private partnership projects in the “A” credit rating range; however, the operating and maintenance resilience of 53.3% and lifecycle resilience of 46.9% are well supportive of the credit rating and reflective of a fairly simple suite of services to be provided. Negative credit rating pressure could result from material deterioration of the operating and financial performance of the Project. Given the fixed availability-based cost and revenue structure as well as the potential risk of material findings from the major maintenance and rehabilitation testing (first one to occur in operation year 11 (2027)), DBRS Morningstar considers a positive credit rating action to be unlikely in the near term.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) 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 (July 4, 2023) https://www.dbrsmorningstar.com/research/416784.

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

DBRS Morningstar applied the following principal methodology:
-- Global Methodology for Rating Public-Private Partnerships ( October 11, 2023; https://www.dbrsmorningstar.com/research/421701)

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.

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

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