DBRS Morningstar Confirms Plenary Properties LTAP LP at “A” with Stable Trends

DBRS Limited (DBRS Morningstar) confirmed Plenary Properties LTAP LP’s (ProjectCo) Issuer Rating and the rating on ProjectCo’s Long-Term Senior Bonds (the Bonds) at “A” with Stable trends. ProjectCo is the special-purpose entity (SPE) created by Plenary Canadian Holdings Inc. to design, build, finance, maintain, and provide IT and lifecycle services to the Communications Security Establishment (CSE) Long-Term Accommodation Project (LTAP). The project is governed by a 33.5-year Project Agreement (PA) signed between ProjectCo and the Government of Canada (the Crown; rated AAA with a Stable trend by DBRS Morningstar) as represented by Defence Construction Canada (1951) Ltd. (DCC). The office and special-purpose building of approximately 893,000 square feet (sf) are located in Ottawa (the City) and consolidate all services previously provided through four separate facilities by CSE, Canada’s foreign intelligence and national cryptologic agency.

The project is in the ninth year of its 30-year service phase, after having reached substantial completion on July 31, 2014. Honeywell Limited (Honeywell or the Facilities Management (FM) Service Provider), with a parent guarantee from Honeywell International Inc. (rated “A” with a Stable trend by DBRS Morningstar), performs all FM services and lifecycle services on behalf of ProjectCo to return the facility to a state of good repair upon expiry of the PA. ProjectCo’s obligations related to IT support, including associated maintenance and lifecycle services, are passed down on a back-to-back basis to ESIT Canada Enterprise Services Co. (ESIT Canada, the IT Service Provider; previously Hewlett Packard (Canada) Co. (HP)), with a parent guarantee from DXC Technology Company (DXC, considered investment grade by DBRS Morningstar).

The project's operating performance has been good. In 2022, deductions were lower than the previous year, and considered low by DBRS Morningstar. Project Co is currently in discussion with the Crown regarding proposed deductions for certain prior period Help Desk Services issues and Project Co’s alleged failure to meet required KPI timeframes in 2019. There has been no action taken by the Crown and the relationship between the parties is collaborative, with no other material issues or ongoing disputes.

There was a fire in May 2022 which caused some facility damage, where an elevator controller failed. The physical damage was limited but cleanup costs were extensive. ProjectCo’s operations were not impacted. The repair and cleanup costs are ongoing and being covered by insurance. The benchmarking exercise for IT services, as required to be conducted every five years from the third year onwards under the PA, is ongoing. The benchmarking exercise for FM and security services commenced in November 2022 and is also ongoing.

The projected financial metrics for the service phase remain adequate for the rating, with resiliencies of more than 60% and a minimum debt service coverage ratio (DSCR) of 1.23 times (x). As per the latest compliance statement, ProjectCo reported a DSCR of 1.39x for the 12 months ended January 31, 2023. A positive rating action on the Bonds by DBRS Morningstar is unlikely. Prolonged weak service performance, giving rise to the requirement for contractor replacement, could lead to a negative rating action.

ENVIRONMENTAL, SOCIAL, 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 https://www.dbrsmorningstar.com/research/396929 (May 17, 2022).

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

DBRS Morningstar applied the following principal methodology: Global Methodology for Rating Public-Private Partnerships (August 30, 2022; https://www.dbrsmorningstar.com/research/402155)

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/interplay-of-global-corporate-finance-rating-methodologies-when-analyzing-corporate-finance-transactions

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 rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the rating process for this 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 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 ratings are under regular surveillance.

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

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