DBRS Morningstar Confirms Ratings on New Brunswick (F-M) Project Company Inc. at A (high) with Stable Trends

DBRS Limited (DBRS Morningstar) confirmed its ratings on the Highway Bonds and the Tranche A and Tranche B Senior Toll-Based Debt (collectively, the Senior Debt) of New Brunswick (F-M) Project Company Inc. (NBFM or the Company) at A (high) with Stable trends. These rating confirmations are supported by DBRS Morningstar’s current rating on the Province of New Brunswick (the Province) at A (high) with a Stable trend. The ratings on the Senior Debt are a flow-through of the Province’s long-term rating as the New Brunswick Highway Corporation (NBHC), a provincial Crown agent, directly funds the principal and interest (P&I) payments on the Senior Debt.

NBFM is a not-for-profit corporation created to design, build, finance, operate, and maintain a portion of the Trans-Canada Highway between Fredericton and Moncton in New Brunswick (the Highway) under a 30-year public-private partnership (PPP) structure. Although the transaction is structured as a PPP, revenue available to service the Senior Debt is not subject to traffic volumes or abatement for the Company’s performance and continues if the route is unavailable. Debt servicing also survives termination of the Company under the Project Agreement (PA).

In its March 22, 2023, commentary “New Brunswick's 2023–24 Budget: Positive Fiscal Performance to Mitigate Slowing Economic Momentum,” DBRS Morningstar noted that the Province's credit profile demonstrates increased financial flexibility, based on the projection that modest budget surpluses will continue and the debt-to-GDP ratio will decline, supported by the government's continuous efforts to prioritize fiscal sustainability. Notwithstanding the elevated economic uncertainty, particularly in the economies of key trading partners, the use of realistic forecast assumptions, the markedly improved debt outlook, and population growth will provide stability to the Province's credit profile.

Also, as DBRS Morningstar stated in its June 2022 ratings confirmation of the Province, the Province's credit profile appears to have stabilized relatively quickly compared with many other provincial peers, supported by past efforts to address fiscal imbalances and slow debt growth. A negative rating action on the Province could result from a sustained deterioration in operating results, a marked increase in the debt-to-GDP ratio beyond expectations, and/or New Brunswick Power Corporation (NB Power) failing to reduce leverage, causing DBRS Morningstar to no longer treat NB Power as self-supported. Even prior to the Coronavirus Disease (COVID-19) pandemic, a positive rating action on the Province was unlikely, as the ratings were constrained by New Brunswick's weak economic fundamentals.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors 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.

The principal methodology is DBRS Morningstar Global Criteria: Guarantees and Other Forms of Support (March 28, 2023; https://www.dbrsmorningstar.com/research/411694).

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 .

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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