DBRS Downgrades SNC-Lavalin Innisfree McGill Finance Inc.

DBRS has today downgraded the rating on the Series A Senior Amortizing Bonds of SNC-Lavalin Innisfree McGill Finance Inc. (the Issuer) to BBB (high) from A (low). The trend remains Negative. The Issuer is the financing vehicle of Groupe immobilier santé McGill S.E.N.C. (ProjectCo), the special-purpose vehicle responsible for the design, construction, financing and maintenance of a new 217,500 square metre hospital under a 34.3-year public-private partnership with the McGill University Health Centre (the Hospital).

The rating action results from today’s downgrade by DBRS of SNC-Lavalin Group Inc., the Design-Build (DB) Contractor Guarantor on the project. Also contributing to the rating action are the continuation of significant delays on the project as well as the various issues that have plagued schedule recovery over the last year and the reticence of the Hospital to accept responsibility for certain variations and supervening events that have contributed to the schedule erosion.

Progress on site continued at a relatively sound pace since DBRS’s August rating review, with overall progress at 80% at the end of September 30, 2013. Substantial completion of block E and F is now projected to be achieved by July 4, 2014, and notice has been provided to the Hospital of the intended early handover of these parts of the project. However, blocks A, B, C and D remain substantially behind schedule, with all works, including testing and commissioning, expected to be completed by March 31, 2015, six months after the original Scheduled Substantial Completion Date of September 30, 2014. DBRS also notes that the Hospital has not yet accepted responsibility for various supervening events that have significantly contributed to the delay, such as the integration of the Shriner’s Hospital, the October 2011 strike action and the delays in equipment selection, which has prevented ProjectCo from obtaining schedule and monetary relief available under the Project Agreement.

Recognizing that the credit profile of the DB Contractor only influences a project over its construction phase, DBRS notes that the rating and trend could be restored to their original levels following Substantial Completion, provided the various issues outstanding with the Hospital reach a favourable resolution and do not undermine the relationship between the two parties during the service phase.

Notes:
The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodology is Rating Public-Private Partnerships, which can be found on our website under Methodologies.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.