DBRS Changes Trend of Rainbow Hospital Partnership to Negative

DBRS has today confirmed Rainbow Hospital Partnership (ProjectCo) at A (low), although the trend has been changed to Negative from Stable.

The trend change primarily stems from today’s downgrade and maintenance of the Negative trend of SNC-Lavalin Group Inc. (SNC), one of the Design-Build (DB) Contractor Guarantors for the Rainbow Hospital project. In its rating confirmation on August 28, 2013, DBRS noted that the construction security package, consisting of a 9% letter of credit, 100% performance bonding, and 50% labour and materials bonding, was in excess of that which was required for the rating and could allow the project to absorb a potential one-notch downgrade in the rating of SNC. However, the impact of the one-notch downgrade and the continuation of the Negative trend at SNC have exceeded the flexibility afforded by the security package, necessitating the trend change at the ProjectCo level. DBRS notes that where a project is approaching construction completion, a rating action or trend change on the rating of the DB Contractor may not automatically translate into a similar rating action at the project if it appears that substantial completion will be achieved in a timely fashion. However, in DBRS’s view, the six- to eight-week delay in construction progress that continues to persist increases the potential that the target substantial completion date of October 14, 2014, may not be met and is not supportive of maintaining a Stable trend at the project level.

DBRS expects that the trend could be revised to Stable once construction has been successfully completed, or prior to that if the trend on SNC were revised to Stable and the project’s construction progress accumulated no incremental material delays.

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.

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

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