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TransLink’s AA credit rating: what it means for the transportation system

TransLink’s two rating agencies – Dominion Bond Rating Service and Moody’s – have both just reaffirmed TransLink’s credit rating as AA stable.

I know some of your eyes may have glazed over a tiny bit when you read that. But if you’re interested in TransLink and how we deliver our transportation services, it’s worth understanding why having such good credit ratings is so important.

To explain what the credit rating confirmation means, I chatted with Derek Bacchioni, TransLink’s Treasury Manager.

Derek Bacchioni, TransLink Treasury Manager

Derek Bacchioni, TransLink Treasury Manager

Who are you and what do you do at TransLink?

I’m TransLink’s Treasury Manager. I’m primarily responsible for helping manage TransLink’s cash flows to make sure TransLink has sufficient cash available to pay its payroll and bills on time. An integral part of managing these cash flows is looking after TransLink’s investments and also its short-term and long-term borrowings programs.

Why did TransLink’s rating agencies just reaffirm TransLink’s credit ratings?

Both DBRS and Moody’s undertake an annual review of TransLink’s finances. After they finish their review, they produce a report that states their opinion of TransLink’s financial health and stability. In general, there are a number of things that support TransLink’s positive credit ratings:

  • TransLink has diversified revenue sources (e.g. fuel tax, property tax and fares) that are fairly stable and predictable.
  • Transit ridership is growing.
  • We’re considered to have conservative and strong management.
  • Rating agencies consider our governance model as a strength, but recognize the challenges it creates.
  • Our legislation requires us to prepare a plan and budget each year (e.g. our Base Plan).
  • TransLink has conservative financial policies, especially regarding debt management and maintaining minimum reserves and contingencies.

Between their annual reviews our rating agencies also keep an eye on any major developments that could impact TransLink’s financial health and stability. If they feel that something has transpired that would change their opinion on our financial situation they could unilaterally decide to change our credit rating either up or down.

Why are credit ratings so important for TransLink?

TransLink borrows money so that we can invest these funds into the assets and infrastructure of the transportation system we operate. Credit ratings are one of the primary ways that both bankers and investors – current and potential – gauge our financial health and stability. Credit ratings help them decide whether or not they are willing to lend or continue to lend money to TransLink and, if so, at what rate of interest.

It would be much more difficult for TransLink to borrow funds if we didn’t have a credit rating. Or we would have to borrow at a much higher rate of interest, because our investors would have to do a lot more work to continually monitor TransLink’s financial health and stability. Thus, our bankers and investors rely a lot on the independent assessments made by our credit rating agencies.

How much has TransLink raised from investors, and what is it using the money for?

To date TransLink has raised $750 million from longer-term investors. These funds have been primarily invested in buses, SkyTrain vehicles, road and bridge improvements, and many more physical assets and system upgrades which help us provide a safe and reliable transportation system throughout Metro Vancouver.

Thanks, Derek!

As always, please post your comments and questions here, and Derek and I will get you the answers!

Author: Tina Robinson


3 Comments

  • By Dennis Piva, November 1, 2013 @ 3:53 pm

    I’m curious as to why Translink’s borrowing isn’t done through the Municipal Finance Authority or the Provincial government – they both have a “AAA” rating which would make the borrowing costs even lower.

  • By Tina Robinson - Buzzer Contributor, November 4, 2013 @ 1:57 pm

    This is a great question! I’ve asked Derek, and here’s his response:

    The way we are set up legislatively, the Province of BC cannot borrow on our behalf and we borrow independent of the province. If we were a crown corporation this would be different, but TransLink is an independent entity, not a crown corporation.

    With respect to the MFA of BC, up to spring 2009, it was our sole source of debt financing. However, we no longer borrow through the MFA for a variety of reasons. One reason is that going directly to the market gives us more flexibility on how and when we go to the market. Another important reason is the fact that we are a very large entity, and it makes sense for an organization like ours to go directly to the market as we are of the size and have the capacity to do so. The MFA isn’t really meant to meet the needs of an organization of our size and borrowing needs — if we were to go through the MFA, we would constitute a disproportionate portion of their portfolio and thus could negatively affect their AAA credit rating.

    It’s worth noting that the City of Vancouver is similar. It too could go through the MFA, but instead it too goes direct to the market.

  • By REDAIR, December 22, 2013 @ 1:47 am

    Transport or transportation is the action of people, animals and items from one place to another. Ways of transport involve air, practice, road, water, cable, route and area. So thanks for sharing your information…

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