DBRS Limited (DBRS Morningstar) confirmed the 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 rating is based on the unconditional and irrevocable federal loan guarantee (the Guarantee) 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 September 22, 2020 (see DBRS Morningstar’s related press release dated September 22, 2022).
DBRS Morningstar notes that the Guarantee met its criteria for a flow-through of Canada’s sovereign 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 that the Bonds’ rating will continue to move in tandem with Canada’s sovereign rating, irrespective of the Project’s performance. Any upgrade or downgrade is expected to follow a similar 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 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 A (low) 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, although the Project may not transmit the Nova Scotia Block of energy until mid-2021 because of the construction delay at the associated Muskrat Falls Project. NSPML has started collecting revenue from Nova Scotia Power and, in turn, from Nova Scotia’s ratepayers on an interim basis since Q1 2018. The amount is more than sufficient to service the Project’s debt obligations.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.
All figures are in Canadian dollars unless otherwise noted.
The principal methodology is Guarantees and Other Forms of Support (January 22, 2020), which can be found on dbrsmorningstar.com under Methodologies & Criteria.
For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.
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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.
Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.
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