DBRS Confirms Integrated Team Solutions SJHC Partnership Series A Senior Bonds at A (low), Stable Trend

DBRS has today confirmed the rating of A (low) with a Stable trend on the Series A Senior Bonds (the Bonds) of Integrated Team Solutions SJHC Partnership (ProjectCo), the special-purpose entity (SPE) created to design, build, finance and maintain two new mental health facilities in London and St. Thomas, Ontario, under the 32-year project agreement (PA) with St. Joseph’s Health Care London (SJHC or the Hospital).

The construction phase entails the design, construction and commissioning of a 454,025 square foot (sf) regional mental health facility adjacent to Parkwood Hospital in London and a 234,430 sf regional mental health forensics facility in St. Thomas. Except for the funding of certain supervening events, ProjectCo’s construction-related obligations have been passed down to EllisDon Corporation (the Construction Contractor) under two separate construction contracts that have a combined value of $374 million.

During the past year, construction activities generally progressed well at both sites. The Construction Contractor achieved Early Occupancy completion at the St. Thomas site on April 25, 2013 as scheduled, and patients have been moved into the facility and the hospital is operating. At the London site, more than 90% of construction is complete, as measured by the proportion of fees earned by the Construction Contractor. Superstructure works are complete and major mechanical and electrical (M&E) equipment is in place at all buildings. All major subcontracts have been executed, and outstanding contracts related to landscaping works will be tendered in the upcoming month. The total project guaranteed price remains essentially unchanged at $374 million with a few minor variations to be separately funded by the Hospital. Based on the updated schedule provided by the Construction Contractor as of February 28 2014, the technical advisor (TA) (Altus Group) has opined that reaching the Scheduled Substantial Completion Date of October 28, 2014 at the London site is not a concern at this time. Both sites are expected to achieve LEED Gold Certification.

The completion of the St. Thomas facility marked the beginning of the 30-year service phase. Except for general management, which is performed by ProjectCo, all risks and responsibilities pertaining to core facility management (FM) and lifecycle maintenance are undertaken by Honeywell Limited (the Service Provider) for the life of the project. According to ProjectCo, only a minimal amount of deductions were made against the interim service payments at the St. Thomas facility, and were not caused by any construction deficiencies or availability failures. DBRS notes that the service obligations are standard but exclude certain soft FM services generally passed down by the Province to the private sector, such as cleaning and security, resulting in a smaller operating budget.

Notes:
All figures are in Canadian Dollars unless otherwise noted.

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.