OREANDA-NEWS. S&P Global Ratings today said it affirmed its 'BBB+' senior secured debt rating and 'BB' subordinated debt on Plenary Properties NDC GP (NDC or ProjectCo). S&P Global Ratings removed the senior secured debt rating from CreditWatch, where it was placed with positive implications Feb. 12, 2016. The outlook is stable.

"The CreditWatch removal reflects that on Johnson Controls Inc.," said S&P Global Ratings credit analyst Yousaf Siddique. Johnson Control Inc. (JCI) provides a parental guarantee to the project service provider, Johnson Controls L. P. (JCLP), which we believe is irreplaceable at the current ratings.

The CreditWatch removal on JCI reflects S&P Global Ratings' assessment that the merger of JCI with Tyco International PLC poses some integration risk and will result in increase in the combined entity's debt leverage. We placed the ratings on JCI on CreditWatch with positive implications on Feb. 12 because we believe that the combined entity will create a more comprehensive global provider of building products and services in the area of controls; heating, ventilation and air conditioning; energy storage; fire protection; and security.

NDC is a special-purpose vehicle (SPV), owned by Plenary Group, that the Ontario government mandated in 2008 to design, construct, finance, and operate a data center for the Ministry of Government Services. Having completed construction in 2010, the project is in operations. Plenary entered a 30-year fixed price contract for facility management (FM) and lifecycle services with JCLP.

The project is performing well, with minimal deductions. The trailing 12-month debt service coverage ratio (DSCR) for June 30, 2016, was 1.15x for senior debt and 1.04x for subordinated debt. This is in line with our expectations of 1.14x and 1.03x, respectively. The slightly higher DSCRs followed lower than expected SPV costs.

The stable outlook reflects our expectations that operations will continue in accordance with the output specifications and with minimal deductions, and the DSCRs will remain at forecast levels.

We would consider upgrading the senior debt by one notch if we raise the ratings on JCI. There is limited scope for a subordinated debt upgrade, given the fixed revenue payments that limit any material subordinated debt DSCR improvement.

We could lower the ratings in the event senior minimum DSCR declined and stayed below the low-to-mid 1.1x to 1.2x range and subordinated DSCR falls below its existing expected minimum levels consistently; or if there are higher deductions relative to the various thresholds in the project agreement. In addition, we could lower the ratings if the ratings on JCI or the financial counterparties fall below the ratings on the bonds.