-- 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.
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.
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
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
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
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.
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.
-- USPF Criteria: Toll Road And Bridge Revenue Bonds, June 13, 2007
Halifax-Dartmouth Bridge Commission
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