S&P: Halifax-Dartmouth Bridge Commission Affirmed At 'A+' On Healthy Liquidity Levels; Outlook Stable
The rating reflects HDBC's stand-alone credit profile (SACP), which S&P Global Ratings assesses at 'a+'. The rating also reflects our opinion that the likelihood of the provincial government providing extraordinary support to the commission in the event of financial distress is low, resulting in no uplift to the rating.
"The SACP primarily reflects our opinion of the commission's near-monopoly status over the primary link between Halifax and Dartmouth; long history of growth in traffic revenues, albeit more modest recently; healthy liquidity; and stable debt service coverage levels," said S&P Global Ratings credit analyst Dina Shillis. The SACP also reflects the commission's high debt burden because of the deck replacement project and lack of toll-setting autonomy.
HDBC, in Nova Scotia, operates a two-bridge system that is the primary link between Halifax and Dartmouth. We believe the commission benefits from the local economy, which is the largest metropolitan area in the province and Atlantic Canada, and is a regional hub and tourist destination. The Census metropolitan area's (CMA) population stood at more than 418,000 in 2015 and rose an average of 0.9% a year for the past decade. We believe that continued economic growth in the CMA will support sound traffic performance in the medium term.
In our view, HDBC's near-monopoly position as the primary link between Halifax and Dartmouth is the foundation of its business position. Because of their strategic location and the lack of significant competitive alternatives, the commission's two bridges represent the fastest and most convenient way for vehicular traffic to move between the two cities, especially during rush hour. Furthermore, we believe that the electronic tolling system benefits traffic flow on the bridges as well.
The stable outlook reflects S&P Global Ratings' expectation that HDBC's traffic and revenue growth will remain muted in the next two years because of the deck replacement project, and its debt service coverage ratio (DSCR) will be about 2.6x in fiscal years 2017-2019. In addition, we expect the commission's relationship with the province to not change.
Material weakening of HDBC's financial profile -- such as a substantial declines in the DSCR resulting from significant drops in traffic volumes and toll revenues or from an unexpected material increase in operating and maintenance costs -- and deteriorating liquidity position could result in downward pressure on the rating.
Conversely, a significant reduction in debt outstanding and improvement in the DSCR to historical levels of more than 3.5x, coupled with the commission's ability to pass a stress test to be rated above the government, as outlined in our criteria, could result in a positive rating action. However, we view this as unlikely in the next two years.