S&P Rates Strait Crossing Development Rev Bonds 'A-'.

TORONTO--(BUSINESS WIRE)--Standard & Poor's CreditWire 6/30/98 --Standard & Poor's today assigned its single-`A'-minus rating to Strait Crossing Development Inc.'s C$328 million offering of 6.17% revenue bonds, due Sept. 15, 2031.

At the same time, Standard & Poor's assigned its single-'A'-minus corporate credit rating to SCDI.

The outlook is positive. SCDI is the lease holder and concession operator of the Confederation Bridge, connecting the provinces of Prince Edward Island and New Brunswick.

The single-'A'-minus rating of the Strait Crossing Development Inc. (SCDI) revenue bonds takes into account the following key project risk factors:

-- Some revenue uncertainty linked to potential variability of future traffic levels;

-- Toll-setting flexibility that is limited to annual increases of 75% of the change in the consumer price index for Canada. Thus SCDI cannot increase tolls above the ceiling to make up for revenue shortfalls should they occur;

-- The moderate operating risk inherent in a single-site bridge facility;

-- Limited debt service (blended principal and interest) coverage (excluding reserve balances and interest income) levels climbing from just above 1.05 times (x) to about 1.25x by 2005, which is on the low end of coverage levels for single-'A' category bridges and bridge systems;

-- The presence of competition for traffic in the summer and autumn by the Woods Island Ferry service, which receives an operating subsidy from the Government of Canada (Canada), and will continue to receive such subsidy for the foreseeable future;

-- The obligation to transfer ownership of the facility to Canada shortly after the bond issue is simultaneously fully amortized and retired.

There is therefore limited ability to adapt to a shortfall in net cash flow by extending the concession's debt amortization;

-- Tax liabilities arising towards the end of the concession period will impose an additional claim on toll revenues that is expected to be accommodated under a range of scenarios;

The aforementioned project risk factors are offset at the single-'A'-minus rating level by the following key project strengths:

-- A 35-year concession granted by Canada to SCDI to operate the bridge. The concession includes a significant noncompetition clause prohibiting Canada from constructing or subsidizing a competing facility within 25 kilometers of the bridge;

-- Strong fundamental demand for the facility, given its complete monopoly on traffic to and from Prince Edward Island for about five months per year, an effective monopoly on commercial traffic from a large geographic region even in the summer months, and its relatively affordable toll levels;

-- A short, but so far very successful history of operations, backed by a long history of ferry traffic to Prince Edward Island, which credibly underpins future traffic and revenue forecasts. Standard & Poor's believes the traffic and revenue forecasts to be reasonable, though not overly conservative, given the limited track record against which to judge future traffic levels;

-- The fact that toll-based financing represents a small portion of total financing. About two-thirds of the total facility cost was raised in a 1993 bond offering backed by an assignment of an annual payment by Canada, constituting an explicit subsidy for the bridge structure;

-- A very robust concrete bridge structure, necessitated by the facility's specified 100-year design life, which is much longer than the term of the toll revenue bonds;

-- A concession toll regime in which annual increases are automatic, and not subject to regulatory or political discretion. Declining real toll rates over time may contribute to the long-term frequency of crossings for regular users;

-- A strong insurance package which includes 42 months' business interruption insurance and total insurable costs of about two-thirds of the initial construction costs;

-- Security interest in: toll revenues (net of tightly-defined allowable operations and maintenance costs), project revenue and reserve accounts, and all relevant bridge operating agreements, giving bondholders first priority on use of the asset in the event of a default. A security interest in the project agreements held by Canada accommodates bondholder intervention in default scenarios under the terms of the Subordination and Priority Agreement;

-- Continuing involvement of an independent engineer in the project maintenance regime, budgets, and disbursements providing additional assurance as to the continuing soundness of operational management; and

-- Project participants with a substantial global track record of development and maintenance of similar structures, as well as a collective strategic and financial interest in successful performance under the concession agreement.

OUTLOOK: POSITIVE Should actual traffic levels develop at or above projections, strengthening coverage levels would lead to the possibility of a rating upgrade within a one-to-three year horizon, Standard & Poor's said. -- CreditWire

    CONTACT: Stephen Dafoe, Toronto (1) 416-202-6006
              Thomas G Connell, Toronto (1) 416-202-6001
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