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407 etr

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    Heat taken off 407 owner's credit rating
    DBRS sees no damage to 407 International in collision with Ontario government


    The debt rating of 407 International Inc., owner of Ontario's only toll highway, is no longer under review by Dominion Bond Rating Service, with the agency now saying it expects no material impact from 407's dispute with the provincial government over a one-cent-per-kilometre fee hike.

    DBRS had put all the issued debt of 407 International under review with developing implications on Feb. 2, one day after the government served notice that 407 ETR, the 108-kilometre highway north of Toronto, was in default of a contract with the province.

    On Friday, however, DBRS ended its review and left 407 International's debt ratings stable. It said it expects the company's credit profile "will not be materially impacted" by the dispute with the province.

    It had earlier expressed concern that without the toll increase 407 International would be hard-pressed to service its $1.5-billion debt.

    Friday's statement from DBRS indicated it backs 407's interpretation of the contract.

    "DBRS expects the company will maintain its right to raise toll rates over the long term, and believes the concession agreement clearly provides for this right," the report said.

    "Assuming this is preserved, it is unlikely that any settlement between the company and the province will threaten assigned ratings. Meanwhile, the toll rate increase implemented last month has been beneficial for the company, as demand for the highway has remained strong."

    The government claimed the company breached its contract by unilaterally hiking tolls by one cent per kilometre, to 13.95 cents per kilometre.

    407 International insists that its 99-year deal signed in 1999 by the former Conservative government allows it to raise tolls in accordance with higher traffic volumes.

    Traffic rose by only one per cent in 2003, but DBRS said the increase would have been larger if not for the August blackout and the travel impact of SARS.

    Ontario Superior Court has stayed the default process initiated by the government, pending the outcome of a dispute resolution process which began Feb. 2.

    Last month, 407 International reported a loss of $75.2 million in 2003, an improvement from a $99.1-million loss in 2002. Revenue jumped to $239.6 million from $207.5 million.
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