Both trends are Stable.
KEY CREDIT RATING CONSIDERATIONS
The rating confirmations reflect NCPLP's smooth operations and satisfactory financial performance during the review period, with required minimum service levels achieved at all times. The Debt Service Coverage Ratio (DSCR) was 1.35 (x) in FY2023, slightly below Morningstar DBRS' rating-case expectations, because of an operating cost over-recovery in 2022, which was then deducted in 2023. Morningstar DBRS notes that the 2022 over-recovery was due largely to adjustments to the operating plan made by
NCPLP is a nontaxable, bankruptcy-remote special-purpose vehicle established to own and operate the Northern Courier Pipeline (NCP), a mission-critical component of
CREDIT RATING DRIVERS
The credit ratings are supported by 1) the highly predictable cash flow expected under the Transportation Services Agreements; 2) the criticality of the asset as an essential infrastructure component of the
FINANCIAL OUTLOOK
NCPLP's credit ratings continue to be underpinned by the expected highly predictable and high-quality cash flow resulting from the cost-of-service (COS) nature of the Transportation Services Agreement and the Tank Services Agreement (together, the TSAs); the expected strong operational performance; and the high quality of the asset, resulting in projected minimum and average DSCRs of 1.41x and 1.64x, respectively, which exceed the requirements for the current credit rating level. Morningstar DBRS considers NCPLP's operations to be relatively straightforward, with operations services now provided by an SEI subsidiary that is an experienced operator with aligned interest.
CREDIT RATING RATIONALE
The NCP has been in service since
Strong performance at Fort Hills continued in 2023 and the first half of 2024, following a mine improvement plan that commenced in Q4 2022, including an accelerated sequence of mine development from the
Because the credit ratings are currently capped by Morningstar DBRS' credit view on FHELP, any change in either the partner composition or the credit ratings on SEI could result in a change to the credit rating, absent any mitigating provision. Morningstar DBRS does not view a positive credit rating action on NCPLP as likely at this time. Similarly, Morningstar DBRS does not believe that there will be pressure on the credit ratings due to deteriorating credit quality of the Shipper's shareholder or guarantor at this time. However, significant operational underperformance that consistently breaches the required minimum service levels or an extended service interruption triggered by an extraordinary event (fire, spills, etc.) that causes significant revenue loss could lead to an adverse impact on NCPLP's credit ratings.
ENVIRONMENTAL, SOCIAL, AND 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 Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (
BUSINESS RISK ASSESSMENT (BRA) AND FINANCIAL RISK ASSESSMENT (FRA)
A) Weighting of BRA Factors
In the analysis of
B) Weighting of FRA Factors
In the analysis of
C) Weighting of the BRA and the FRA
In the analysis of
Notes:
All figures are in Canadian dollars unless otherwise noted.
Morningstar DBRS applied the following principal methodology:
Global Methodology for Rating Project Finance (
https://dbrs.morningstar.com/research/431188
Morningstar DBRS Global Corporate Criteria (
https://dbrs.morningstar.com/research/431186/
Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (
The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.
A description of how Morningstar DBRS analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.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-DBRS@morningstar.com.
The credit rating was initiated at the request of the rated entity.
The rated entity or its related entities did participate in the credit rating process for this credit rating action.
Morningstar DBRS had access to the accounts, management and other relevant internal documents of the rated entity or its related entities in connection with this credit 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. Morningstar DBRS trends and credit ratings are under regular surveillance.
Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.
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