One year ago, almost to the day, Moody’s Investor Services rated about $583.1 million of debt that was to be issued by Sea-to-Sky Highway Investment LP. The issuer operates the British Columbia road from Horseshoe Bay to Whistler that’s part of Highway 99 under a private public partnership.
Moody’ assigned an A2 senior secured to the offering of amortizing bonds, the proceeds of which were to be used to repay bank debt, “to settle the interest rate swap arrangements,” as well as provide an “equity distribution” to the equity sponsor.
That was the plan. The sponsor — at the time called Fiera Axium Infrastructure — hired Scotia Capital, Desjardins Securities and Casgrain & Co. to round up buyers. For whatever reason — and market conditions were as good as any — the deal didn’t get done.
Early this year, Fiera sold the 35 per cent stake it held in the sponsor — back to the sponsor (now called Axium Infrastructure). At that time the sponsor managed about $1.4 billion in “core infrastructure assets.”
Fiera Axium entered the picture in late 2010 when it, along with two other investors acquired 100 per cent of the economic interests in the concession rights of the Sea-to-Sky. (Quebec’s Régime de Rentes du Mouvement Desjardins and the Nova Scotia Pension Agency are two of the investors in the fund that bought the concession rights.) The consortium bought those rights from Macquarie Essential Assets Partnership.
Macquarie acquired the rights to the public private partnership in late 2005 when it won the contract to design, build, finance (about two-thirds of the improvements) and operate the entire highway for 25 years. (The project, which included performance incentive payments but ruled out tolls, was completed in 2009.) In 2010, Macquarie wanted out, in part, because the investment was held in a fund that had term limits.
Despite the recent revamped ownership structure, the issues – the bank debt, the interest rate swap and presumably the need for an equity distribution – remained. So, plans were set for Sea-to-Sky to return to market.
And the issuer followed the same script as is in June 2015: It hired Moody’s, which after doing the analysis assigned an A2 rating to the offering, which had the same use of proceeds as before. But because of the passage of time, the debt outstanding had fallen to $552.1 million.
For the 2016 issue, the sponsor made one change: it made National Bank Financial as the lead manager and sole book runner. The sponsor appointed BMO Capital Markets, CIBC World Markets and Desjardins as co-managers.
And while it wasn’t easy, this time the financing did close. The word is that a “healthy group of buyers,” participated in the 15-year offering for which they will receive a 2.629 per cent annual coupon. But because investors purchased an amortizing bond they will receive a mix of interest and principal before the bond matures.
The P3 project has attracted its share of controversy. Four years back, for example, B.C.’s auditor-general produced an audit, which concluded the design and construction risks were “effectively allocated” between the government and the private partners, that the concession agreement had been “effectively managed” but that the long-term objectives of improved safety reliability and capacity have not been demonstrated.
There have been positives: in its report, Moody’s said the project has a “well developed operating history with zero payment deductions since final completion of the project in 2010.” But it also warned the issuer faced “traffic volume risk.”