BC Ferries pondering taking on more debt | Daily Hive

Preliminary conceptual artistic rendering of the New Major Vessels. (BC Ferries)

BC Ferries might explore the possibility of increasing its loan obligations by issuing more bonds as a strategic measure to address its growing expenses.

In a news release issued on December 23, 2024, the ferry corporation announced that it had been talking with some of its bondholders about the possibility of changing the rules around how much debt it can take on, specifically the rules on taking on more debt.

However, they have not actually begun the formal process, and there is no guarantee at this time that it will happen.

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“British Columbia Ferry Services Inc. announced today that it engaged in discussions over the past two weeks with select institutional bondholders of its outstanding obligation bonds regarding a prospective amendment to the terms of its master trust indenture dated May 19, 2004,” reads the brief news release.

“The discussions sought to gain clarity as to the degree of bondholder support for a prospective change to the terms of a covenant permitting BC Ferries to incur additional indebtedness.”

Few other details were made available.

Conceivably, this approach could alleviate the pressure on BC Ferries to raise fares steeply or rely heavily on direct government subsidies and funding to manage its increasing operating and capital costs. BC Ferries recently warned that there is currently pressure to perform a 30% single-year fare hike in 2028.

The ferry corporation previously cautioned that it is contending with escalating operations and maintenance expenses, and particularly the significant capital costs associated with the upcoming procurement of seven new major vessels designed to serve the critical routes connecting Metro Vancouver with Vancouver Island and the Sunshine Coast.

These new major vessels — each comparable to the size of BC Ferries’ largest ships, the Spirit of Vancouver Island and the Spirit of British Columbia — are expected to be the most expensive capital investment in the history of BC’s coastal ferry system, potentially far exceeding $1 billion.

These ships will not only completely replace the aging C-class vessels built in the 1970s and early 1980s, but also serve to boost capacity amid growing demand, with an overall capacity increase of up to 28% for passengers and 19% for vehicles. This includes the provision of one spare vessel to help ensure the continuity of service and capacity levels, such as maintenance issues resulting in the need to pull a vessel from service.

In early October 2024, BC Ferries first indicated that it would take a phased approach to build these seven new major vessels to spread out the high capital cost over a longer timeframe, with the first five vessels entering service from 2029 to 2031 and the remaining two vessels entering service by 2037.

Then on December 13, 2024, BC Ferries formally submitted its plan to the independent BC Ferries Commissioner to pursue a procurement of the first phase of five new major vessels. After approval in early 2025, it will enable BC Ferries to proceed into the procurement phase for contracting a shipyard.

“BC Ferries is a marine highway, and we have a responsibility to provide reliable service to keep people and goods moving in British Columbia,” said Nicolas Jimenez, CEO of BC Ferries, earlier this month.

“We’ve heard from our customers that our busiest routes are too often fully booked during peak travel times, leaving many without access to the sailings they need. Without the addition of these vessels on our major routes, we’ll be unable to keep pace with the rising population and it’ll create a real impact on the economies of coastal communities.”

According to public records, over the many years, BC Ferries has made a cumulative total of $1.425 billion worth of bond issues.

This includes a $75 million low-cost loan in March 2024 from the federal government’s Canada Infrastructure Bank (CIBC) to help finance the acquisition of four additional Island Class battery-electric ferries and the installation of the associated charging infrastructure. These four vessels will arrive in 2027, growing the Island Class fleet to a total of 10 ships. The CIB bond term is over a period of 25 years at an annual interest rate of 2.5%.

The previous bond syndicate issue was made in October 2019, when BC Ferries closed a $250 million issue with RBC Dominion Securities, BMO Nesbitt Burns, CIBC World Markets, TD Securities, and Scotia Capital. The bonds bear interest at 2.8% annually for 30 years, due October 2049.

BC Ferries currently has a total of seven bond issues, with the first of these senior secured bonds, worth $250 million, maturing in October 2034, following the end of a 30-year term at an annual interest rate of 6.25%. The ferry corporation also has a $105 million, four-year revolving credit facility with a syndicate of Canadian banks, maturing in April 2028.

Other loans previously obtained by BC Ferries include a 2015 loan agreement of $135 million with KfW IPEX-Bank, with the funds released in 2016 and 2017 upon the arrival of an order of the three Salish-class vessels.

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