DBRS Morningstar Confirms Plenary Justice Okanagan LP at A (low) with Stable Trends

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and the rating of the Series A Senior Notes (the Senior Notes) issued by Plenary Justice Okanagan LP (ProjectCo) at A (low) with Stable trends. ProjectCo is the special-purpose entity created to design, build, finance, and maintain the $185.5 million Okanagan Correctional Centre ( the Project) under a 32.6-year Project Agreement signed between ProjectCo and the Province of British Columbia (the Province; rated AA (high) with a Stable trend by DBRS Morningstar). The rating confirmations reflect the achievement of total completion, the solid experience of Honeywell Limited (Canada) (Honeywell or the Service Provider; rated “A” with a Stable trend by DBRS Morningstar), the straightforward service obligations, and the supportive resiliencies.

The Certificate of Final Completion was received in September 2019, and the Service Provider continues to provide facility maintenance, lifecycle maintenance, and utilities-management services for the 30-year service phase of the Project. Operations have continued smoothly during the fifth year without material deductions. The performance of the Year 5 Life Cycle items is being monitored according to the five-year Life Cycle Plan. In July 2021, Honeywell replaced eight Point Mapping Tunnel (PMT) client PCs and upgraded with a dedicated PMT server. Honeywell also replaced the Storage Array Network, one part of the Emergency Security Communications System (ESCS), as it was no longer supported by the manufacturer. Other ESCS equipment is operating satisfactorily.

The energy consumption Test Period was completed in October 2019, and the results of the test were shared with ProjectCo and the Province. The results showed that the Design & Construction Energy Target was achieved and the certificate was provided. The Design and Construction Energy Target was then adjusted to include various factors such as weather conditions and change orders (Adjusted Energy Target or AET). The third energy year started from October 1, 2021. After an evaluation of energy usage against the AET for the second energy year, the overall consumption resulted in an energy gainshare of approximately $27,000, which was passed down to the Service Provider.

On April 3, 2020, the Service Provider filed a notification to ProjectCo that the Coronavirus Disease (COVID-19) pandemic qualified as a supervening event under the Facility Maintenance and Services Agreement. The Province acknowledged the possibility of this event; however, the Project has been operating normally during the pandemic, and there has been no cost claim related to this supervening event.

The actual debt service coverage ratio as of September 31, 2021, was 1.23 times (x) per the Compliance Certificate. The projected financial metrics remain unchanged and adequate for the rating, with a minimum and average DSCR of 1.21x, as well as operating and maintenance and lifecycle breakeven metrics of 44% and 46%, respectively. The relationship between ProjectCo, the Service Provider, and the Province remains collaborative, with no material issues reported.

While not currently included in DBRS Morningstar’s expectations, material deductions and/or a Service Provider replacement could lead to a negative rating action. The potential for credit upside remains limited at the current rating given the fixed nature of the revenue stream.

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/373262.

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

The principal methodology is Rating Public-Private Partnerships (August 19, 2021, https://www.dbrsmorningstar.com/research/383244), which can be found on dbrsmorningstar.com under Methodologies & Criteria. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021, https://www.dbrsmorningstar.com/research/373262).

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 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.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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