• We have completed our review of The Federal Bridge Corp. Ltd. (FBCL) following its amalgamation with Blue Water Bridge Authority.
• We are raising our long-term issuer credit and senior unsecured debt ratings on FBCL to ‘A-‘ from ‘BBB-‘ and removing the ratings from CreditWatch positive.
• The upgrade reflects our view that FBCL’s stand-alone credit profile and likelihood of extraordinary support from the federal government have improved significantly following its amalgamation with Blue Water Bridge Authority.
• The stable outlook reflects our expectation that in the next two years FBCL’s traffic will remain relatively stable and its debt burden will decline.

TORONTO (Standard & Poor's) Aug. 4, 2015--Standard & Poor's Ratings Services 
today said it raised its long-term issuer credit and senior unsecured debt 
ratings on The Federal Bridge Corp. Ltd. (FBCL) to 'A-' from 'BBB-'. The 
outlook is stable. Standard & Poor's removed the ratings from CreditWatch with 
positive implications, where they had been placed April 24, 2015. 

"The upgrade reflects our view that FBCL's stand-alone credit profile and 
likelihood of extraordinary support from the federal government have improved 
significantly following its amalgamation with Blue Water Bridge Authority," 
said Standard & Poor's credit analyst Mario Angastiniotis. 

We have raised FBCL's stand-alone credit profile (SACP) to 'bbb' from 'bbb-', 
because we believe FBCL's new ownership and governance structure has led to a 
much stronger business risk profile through its portfolio of four 
international bridges (the Blue Water Bridge, the Sault Ste. Marie 
International Bridge, the Thousand Islands International Bridge, and the 
Seaway International Bridge). Compared with the former Blue Water Bridge 
Authority, FBCL's bridge system offers greater diversification and cash flow 
stability through economic cycles. This, alongside FBCL's strong management 
team that has a track record of sound financial performance, has contributed 
to our decision to raise the corporation's SACP, despite there being little 
change in our base-case debt service coverage ratios (DSCRs) under the 
amalgamated entity. 

In accordance with our criteria for rating government related entities, we 
have revised our assessment of FBCL's likelihood of extraordinary support to 
"moderately high" from "low", resulting in a two-notch uplift to the issuer 
credit rating above the SACP. This reflects our decision to change FBCL's role 
to "important" from "limited importance" and its link to "strong" from 
"limited". In our view, FBCL's revised role reflects its arm's-length, 
non-profit mandate to operate the Canadian side of four international bridges, 
which are economically important to Ontario and, in turn, the federal 
government. In addition, our decision to revise the link reflects the federal 
government's ownership of FBCL and track record of providing strong credit 
support to the corporation, which has a clear corporate governance structure 
with independent management. FBCL has also received a guarantee on its assumed 
debt from Blue Water Bridge Authority. Although this does not meet our 
guarantee criteria in terms of timeliness, we believe it further supports 
FBCL's strong link with the federal government. 

The SACP also reflects our assessment of the following strengths:

• FBCL’s relatively unfettered ability to set rates. Unlike other rated bridge authorities within Canada, like the Halifax-Dartmouth Bridge Authority, under the Canada Transportation Act, FBCL can increase toll rates and only needs to notify the federal Minister of Transport before the effective date. We believe FBCL benefits from upward pricing flexibility, as its tolls for its largest bridge (Blue Water Bridge) on fully weighted commercial vehicles are low compared with those of competitors, such as the Ambassador Bridge in Windsor, Ont.
• Strong management team following the amalgamation, which we expect will implement better budget, capital, and asset management processes, resulting in cost efficiencies.
• Strong traffic demand profile and competitive advantages associated with the strategic location of FBCL’s bridges within Ontario, which represents about 40% of Canada’s economic output. More important, distribution of goods by truck remains the most significant delivery mode for 90%-95% of Ontario’s exports to the U.S. market. The portfolio of bridges represents important crossing points to the U.S. for commercial vehicle traffic; together, they accounted for about 65% of truck crossings between Ontario, Michigan, and New York in 2014. We expect FBCL’s bridges to maintain a similar market share for trucks over the next two years.

In addition, the SACP reflects our view of the following credit weaknesses:

• Traffic demand for international border crossings is very sensitive to economic cycles, with changes in economic output affecting commercial traffic to and from the U.S. Moreover, both commercial and passenger traffic is also sensitive to changes in the Canadian dollar.

The stable outlook reflects our base-case forecast that in the next two years, 
we expect FBCL's traffic to remain relatively stable and its debt burden to 
decline. In addition, should traffic decline on a sustained basis, we expect 
management to take steps, such as controlling costs or potentially raising 
toll rates, to mitigate the impact on the corporation's financial performance. 
A material and sustained rise in traffic volumes and a substantial improvement 
in debt service coverage ratios (DSCR) above 2x in the next two years would be 
a precondition, at a minimum, for a positive rating action. Conversely, 
unfavorable changes to FBCL's business risk profile, a sustained decline in 
its DSCR well below 1.5x, or a change in the link with the federal government 
(for instance due to privatization or negative government intervention) could 
lead us to lower the ratings. 

RELATED CRITERIA AND RESEARCH

Related Criteria

• Criteria: Toll Road And Bridge Revenue Bonds In The U.S. And Canada, Feb. 25, 2014
• Rating Government-Related Entities: Methodology And Assumptions, March 25, 2015
• Criteria: Use of CreditWatch And Outlooks, Sept. 14, 2009

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