OREANDA-NEWS. S&P Global Ratings today said it maintained Ontario-based GrandLinq GP's (ProjectCo) C$40.6 million senior secured non-revolving credit facility and C$103 million senior secured bonds on CreditWatch with positive implications.

The Waterloo Light Rail Transit project continues to experience delays at the Downtown Kitchener Loop area due to the discovery of undisclosed utilities, resulting in a further delay in substantial completion. Under our base-case scenario, we are revising our delay scenario expectations to four months from two. "However, the current delay remains within our downside case expectations and the project continues to have sufficient liquidity to pay for the liquidated damages," said S&P Global Ratings credit analyst Valiant Ip.

We believe there is growing uncertainty on the potential impact on substantial completion due to the delay at the Downtown Kitchener Loop. The discovery of undisclosed utilities has considerably affected the construction schedule. Although any further similar discoveries will be treated as a delay and compensation events under the project agreement, we believe the region's response to related claims may not be timely. As a result, we include them under our base-case scenario. We also believe that GrandLinq Contractors could discover more undisclosed utilities in the area, resulting in further delays.

In addition, there remains some uncertainty around the impact on substantial completion from the delay at Huron Spur, which relates largely to the delay in relocating the freight track along the spur. Canadian National Railway Co. recently received exemption from Transport Canada to relocate the existing crossing protection equipment. As a result, the company will now be able to proceed with the trackwork and GrandLinq Contractors will commence construction thereafter. However, we believe the potential schedule relief resulting from the revised Bombardier vehicle delivery schedule will mitigate the risks associated with the delays at the Downtown Kitchener Loop and Huron Spur. We believe the vehicle delay will affect the project's testing and commissioning schedule.

In accordance with the project agreement, the region is responsible for delivering the vehicles and completing all the required vehicle testing before handing them over to the project to start the system testing and commissioning process. Because of the significant delay in the vehicle delivery, ProjectCo will no longer be able to complete testing and commissioning as scheduled. According to the May 24, 2016, memorandum, the region announced that this delay will likely delay the start of operations until early 2018. Therefore, we believe the region will likely amend the contractual dates to reflect the revised vehicle delivery schedule provided by Bombardier. In our view, we believe any proposed amendment will provide some flexibility in the schedule to allow ProjectCo additional time to complete construction, reducing the risk of further delays.

Therefore, based on these events, we are maintaining the ratings on CreditWatch with positive implications.

We will resolve the CreditWatch placement in the next 90 days.

We would likely raise the ratings on the project one notch if we see a substantial reduction in the level of volatility in the schedule, reduction in delay on the Huron Spur and Downtown Kitchener Loop, and revision of the contractual dates from the revised Bombardier vehicle delivery schedule. However, we could revise the outlook to stable if the three conditions are not met.

We could lower the ratings if the CDAs on the irreplaceable counterparties fall below those on the project. In addition, we could take a negative rating action if the project incurs significant deductions during operations such that the senior DSCR falls consistently below 1.34x.