DBRS Ltd., the Canadian credit rating agency, made its first full foray into the U.S. market last week when it rated the North Carolina Department of Transportation's $100 million private activity bond deal.
While the rating agency had been involved in the American market before, the move marked the first time DBRS has assigned a rating to a public-private partnership PAB issue.
"We are pretty excited by this," said Grant Headrick, DBRS Managing Director for Infrastructure Finance. "It's an important step. We're planting our flag in the soil."
Formed in 1976, DBRS is an independent credit rating agency and the fourth largest in the world. It is based in Toronto and has offices in New York, Chicago and London. DBRS doesn't participate in any trading or underwriting activities. The Carlyle Group and Warburg Pincus, along with individual Canadian investors, acquired the firm earlier this year.
DBRS has been registered as a Nationally Recognized Statistical Rating Organization with the U.S. Securities and Exchange Commission since 2003. The company was accredited under the U.S. Transportation Infrastructure Finance and Innovation Act in 2013.
Before rating the NCDOT deal for the I-77 HOT Lanes project, DBRS had been involved in 17 different bids for U.S. issues. The firm was either not selected to rate the issue or was working with a team that did not win in the bidding process.
"We can now point to this as evidence as to what we have done," Headrick said, who joined DBRS in 2009 and leads the infrastructure finance team, concentrating on public-private partnerships, airports, ports and other infrastructure-related issuers.
Previously, he worked in the global infrastructure finance group at Moody's Investors Service, where he was involved with rating P3s. He began his financial career at RBC Capital Markets and before that was an officer with the Canadian Navy.
In regard to the I-77 deal, Headrick said that it was a very solid credit, underpinned by a strong construction contractor and good traffic. DBRS assigned a rating of BBB with stable trends to both the $100 million PABs and a $189 million loan to be issued under TIFIA, that will partly fund the design and construction of the I-77 managed toll lane project.
"They can survive a pretty sizeable downtown and still be able to make debt service payments," he said. Citi and Goldman, Sachs received the written award on PAB sale on May 14.
NCDOT picked I-77 Mobility Partners as the private consortium headed by Cintra Infraestructuras S.A. to build the $655 million 26-mile express lane project. NCDOT is providing a $91.4 million subsidy toward construction, with the remaining funds coming from the PABs, TIFIA loan and $250 million in equity from the main sponsors Cintra and Aberdeen Global Infrastructure II LLP. I-77 Mobility Partners will design, construct, finance and operate the project under a 50-year concession agreement. Construction is expected to start this summer and is slated for completion in 2018.
Catherine Chiarot, DBRS Assistant Vice President of Global Corporate Business Development, said the firm has been working with local DOT officials all across America.
"We have been attempting to change the grandfathered language in many bond and contract documents that specifies only the three big rating agencies may be used in a deal — Moody's Investors Service, Standard & Poor's and Fitch Ratings."
She said the firm plans to further expand its reach into the U.S. by meeting with even more DOT officials.
"Going forward, we are going to be making more of those introductions," she said.
Chiarot said DBRS will continue to track the big new infrastructure works, such as the Illiana corridor and the Maryland Purple Line projects. She said the firm is also looking to see the outcome of projects such as the I-70 East in Colorado and the I-66 corridor in Virginia.
DBRS is very familiar with other areas of project financing, such as social infrastructure projects, she said. "We know Green."
Meanwhile, the firm recognizes that there has been some pushback about the expanding use and total effectiveness of public private partnerships. But it thinks that wise planning and forethought, along with public education, is key.
"P3s are not a panacea — but some can provide good value for the money," Headrick said. "All the benefits should be shown to the taxpayers."
