TEXT-S&P affirms Halifax-Dartmouth Bridge Commission 'AA-' rating

Fri Nov 9, 2012 5:04pm EST

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Overview
     -- We are affirming our 'AA-' long-term issuer credit rating on 
Halifax-Dartmouth Bridge Commission.
     -- In part, the rating reflects our view of the commission's strong 
financial risk profile, near-monopoly position, and long history of stable 
growth in traffic revenues.
     -- The stable outlook reflects Standard & Poor's expectation that, in the 
next two years, HDBC's liquidity will continue to be robust and that its 
capital spending program and related debt issuance will not increase 
significantly beyond the current plan.
 
Rating Action
On Nov. 9, 2012, Standard & Poor's Ratings Services affirmed its 'AA-' 
long-term issuer credit rating on Halifax-Dartmouth Bridge Commission (HDBC). 
The outlook is stable.

Rationale
The rating on HDBC primarily reflects Standard & Poor's opinion of its strong 
financial risk profile, a near-monopoly position on vehicular traffic, a long 
history of relatively stable growth in traffic revenues, and adequate 
liquidity. In our view, partially offsetting these strengths are the 
commission's lack of toll-setting autonomy, and a relatively higher level of 
traffic risk as a result of the two-bridge system's lesser degree of traffic 
diversity compared with those of some other systems with multiple tolled 
facilities. 

As of fiscal year-end 2012 (March 31), HDBC continued its long tradition of 
strong operating performance, and once again maintained a strong financial 
risk profile. As expected, as of March 31, the commission's cash interest 
coverage strengthened to 8.1x, compared with 6.2x in the previous 12 months. 
In addition, HDBC's debt service coverage ratio (DSCR) improved to 3.8x from 
2.9x year-over-year. We expect that credit metrics will continue to improve in 
the next two years, largely as a result of the existing debt's amortizing 
structure and continued minimal draws on its line of credit. In the next 
three-to-four years, we expect that a large portion of the planned capital 
expenditure will be debt-funded, so we expect that debt service coverage will 
decrease notably, to a level more in line with historical performance of 
2.0-3.0x. 

HDBC's near-monopoly position on vehicular traffic in its service area 
underpins its strong business position. With a lack of significant competitive 
alternatives, the commission's two bridges benefit from their strategic 
locations and are the primary link between downtown Halifax and Dartmouth, 
N.S. (across Halifax Harbor). HDBC also benefits from a long history of 
relatively uninterrupted traffic growth, as well as historically stable 
traffic-revenue growth. Traffic volume and toll revenues have increased an 
average of 5.9% and 7.6% a year, respectively, since 1955. However, in 2011, 
traffic and toll revenues declined modestly, 0.50% and 0.03%, respectively, 
from record levels achieved in the previous year. As of Oct. 31, 2012, 
year-to-date traffic volumes on both bridge systems have increased about 1.6%. 

We believe the commission's liquidity is adequate. In addition to a C$60 
million revolving, unsecured line of credit from the Province of Nova Scotia 
(A+/Stable/A-1+), HDBC has reserve accounts for debt service; capital; and 
part of the annual operating, maintenance, and administrative budget. The 
commission also has a C$5 million operating loan facility, which is renewed 
annually. These liquidity sources provide financial flexibility to HDBC to 
manage unexpected revenue or cost variances. We expect that the commission 
will maintain a minimal draw of less than C$5 million on its line of credit in 
the next two years.

In our view, partially offsetting these factors is HDBC's lack of toll-setting 
autonomy, given that the Nova Scotia Utility and Review Board (NSUARB) must 
approve the toll structure. In fiscal 2011, for the first time since 1992, the 
NSUARB approved a toll increase of 20 cents for passenger vehicles using 
MACPASS (phased in over two years), and 25 cents per passenger vehicles paying 
cash, both whose proceeds will help fund the bridges' long-term maintenance 
needs. 

In accordance with our criteria for government-related entities (GREs), our 
view of a "low" likelihood of timely and sufficient extraordinary government 
support reflects our assessment of the "limited importance" of HDBC's role and 
its "limited" link with the province. The rating on the GRE is above the 
rating on its government, based on our view that it operates as a fairly 
independent enterprise with a strong financial risk profile. 

Outlook
The stable outlook reflects Standard & Poor's expectation that with the 
continuing penetration of electronic tolling, modest traffic and revenue 
growth will persist in the next two years. As a result of lower amortizing 
debt, HDBC's adjusted DSCRs should remain above 3x during our outlook horizon. 
An upward rating revision is unlikely in this period. Although we believe it 
is also unlikely, material weakening of the commission's financial risk 
profile--such as DSCRs narrowing due to significant lower toll revenues from 
declines in vehicular traffic or unexpected debt issuance--could result in a 
negative rating action.

Related Criteria And Research
     -- Rating Government-Related Entities: Methodology And Assumptions, Dec. 
9, 2010
     -- USPF Criteria: Toll Road And Bridge Revenue Bonds, June 13, 2007

Ratings List
Halifax-Dartmouth Bridge Commission
Rating Affirmed

 Issuer credit rating                  AA-/Stable/--


Complete ratings information is available to subscribers of RatingsDirect on 
the Global Credit Portal at www.globalcreditportal.com. All ratings affected 
by this rating action can be found on Standard & Poor's public Web site at 
www.standardandpoors.com. Use the Ratings search box located in the left 
column.
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