DBRS Limited (DBRS Morningstar) confirmed the AAA ratings with Stable trends on the 2013 and 2017 Guaranteed Senior Bonds (together, the Bonds), totalling $7.9 billion, issued by Muskrat Falls/Labrador Transmission Assets (MFA/LTA) Funding Trust and Labrador-Island Link (LIL) Funding Trust (together, the Issuers). The ratings are based on two unconditional and irrevocable federal loan guarantees: the 2013 federal loan guarantee (FLG1) and the 2017 federal loan guarantee (FLG2; together with FLG1, the Guarantee) of substantially similar nature provided by the Government of Canada (Canada or the Guarantor). This rating action follows DBRS Morningstar’s confirmation of Canada’s sovereign rating at AAA with a Stable trend on October 11, 2019 (see DBRS Morningstar’s related press release dated October 11, 2019).
DBRS Morningstar notes that the Guarantee has met its criteria for a flow-through of Canada’s sovereign rating to the Bonds. The Guarantee constitutes an irrevocable, unconditional, absolute and continuing obligation of Canada. There is no requirement to exhaust recourse against the Issuers before bondholders are entitled to the payment from Canada; all defences are waived by the government and subrogation rights are postponed as long as the guaranteed obligations are still outstanding; and no amendment of the Guarantee is permitted, except by agreement with the Indenture Trustee. Furthermore, release of the Guarantor is permitted only when all its obligations are fully repaid. DBRS Morningstar expects that the Bonds’ rating will continue to move in tandem with Canada’s sovereign rating, irrespective of the Muskrat Falls Project’s (the Project) performance. Any rating upgrade or downgrade is expected to follow DBRS Morningstar’s similar rating action on Canada.
The Issuers were created as single-purpose financing trusts to facilitate the financing of the Project, an 824-megawatt hydroelectric power-generating facility, and the development of associated transmission lines in Newfoundland and Labrador. The Issuers’ sole business is to issue the Bonds and on-lend proceeds to the Project via back-to-back loans. The Issuers sized the Bonds to cover interest payment during construction. After the in-service date, debt service will depend on principal and interest received on the back-to-back loans to the Project.
The in-service cost (including financing costs) are currently estimated at $12.7 billion, which has not changed since June 2017. The Project construction is currently 99% complete. The estimated timelines of Q4 2019 and Q3 2020 for first power and full power, respectively, have also not changed since June 2017.
All figures are in Canadian dollars unless otherwise noted.
The principal methodology is DBRS Criteria: Guarantees and Other Forms of Support, which can be found on dbrs.com under Methodologies & Criteria.
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 firstname.lastname@example.org.
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.
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