DBRS Morningstar Comments on TransEd Partners General Partnership’s Delay in Service Commencement

DBRS Limited (DBRS Morningstar) notes that TransEd Partners General Partnership (ProjectCo) announced a further material delay in the Service Commencement date primarily as a result of the Coronavirus Disease (COVID-19) pandemic, vandalism, slower-than-anticipated energization, and commissioning delays. At the time of DBRS Morningstar’s last update on July 29, 2021, the Service Commencement date was expected to be December 6, 2021. The Service Commencement date is now forecast to be July 29, 2022, which is beyond the Project Agreement (PA) Long Stop date of February 27, 2022. ProjectCo submitted a claim for delays caused by the pandemic during H1 2021 and is expected to submit another claim for subsequent pandemic-related delays. DBRS Morningstar understands that the majority of the additional delays to the Service Commencement date may not fall under the Force Majeure provisions in the PA, which would have caused an extension of the Target Service Commencement Date and the PA Long Stop Date.

Based on discussions with ProjectCo as well as public announcements from the City of Edmonton (the City), DBRS Morningstar understands that the City is assessing options and intends to work with ProjectCo to have the project completed by summer 2022. ProjectCo and the City do not expect to decide on the extension of the PA Long Stop Date (the Long Stop Date Issue) until January or February 2022.

The Finance Party Long Stop Date was originally defined as two months before the PA Long Stop Date. Under an Amendment to the Common Terms and Intercreditor Agreement, the Finance Party Long Stop Date has been extended to a date no earlier than January 28, 2022. ProjectCo’s requirement to submit a remedial plan has also been extended to a date no earlier than January 28, 2022.

Under the Design Build (DB) Agreement between ProjectCo and the Design Builder Joint Venture (DBJV), the DB Long Stop Date of November 27, 2021 (three months before the PA Long Stop Date) has been crossed. Failure by the DBJV to achieve Service Commencement before the DB Long Stop Date is a DB Termination Event. ProjectCo issued a notice to DBJV reserving its rights but has not taken any other action.

As of October 31, 2021, the construction was 98.6% complete, with the actual construction lagging behind the scheduled draw curve by only 1.4%. All the Light Rail Vehicles required have been delivered to the project site. ProjectCo will use available sources of funds, which may include liquidated damages (LDs) to be paid by the DBJV, to cover short-term interest. The LD cap is estimated to be reached only on October 21, 2022, beyond the currently forecast Service Commencement date.

While the delays have been significant and the current Long Stop Dates are forecast to be breached, DBRS Morningstar notes the advanced stage of construction, the availability of the LDs to cover debt servicing and other costs, and that the parties are working toward a solution. The Issuer Rating and the rating on the Series A Bonds issued by ProjectCo remain at BBB (low), Under Review with Negative Implications. DBRS Morningstar continues to closely monitor the credit and the progress of discussions with the City. The ratings may be negatively affected if the discussions with the City on the Long Stop Date Issue do not conclude satisfactorily and timely. The ratings may be removed from Under Review if the parties enter into a satisfactory agreement without incurring any further delays.

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