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Lowest rated P3 ever goes to market (& costs rise)

The largest public private partnership (P3) bond financing in Canada has raised $1.37 billion for a new Montreal hospital. It is for what must be one of the longest P3 deals as well -- a 38.8 year deal to build, finance, and maintain the Centre hospitalier de l'Université de Montréal (CHUM).

The National Post reports that the four equity partners in the P3 deal are all European corporations. Canadian and Quebec partners were squeezed out once again, it seems.

The P3 financing deal is also the lowest-rated one ever to come to market. The Post reports that the bonds came with a 6.721% coupon.
"Part of the difficulty attracting buyers was the credit profile of the investment. The issue was rated BBB (high) by DBRS, one notch higher than the Baa2 assigned by Moody's Investors Service Inc. Every single P3 that has been broadly marketed so far in Canada has enjoyed an A-level rating."
The Post goes on to note:

"If the CHUM deal proved one thing, it's that issuers don't need A-category credit ratings to do bond transactions in the P3 world. It also showed that there's no natural limit on the size of such transactions. ... 'It's really just one more deal,' Mr. McCallum (of RBC Capital Markets, which underwrote the deal) said, modestly. 'There's a maturing of the sector. And this deal is another marker in the maturing of the sector.' "
Critics argue that the cost of financing P3s is too high, and that government financing is more affordable than private financing.

This deal raises the cost of P3s to even higher levels.


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