DBRS Confirms McGill University Health Centre at A (high), Stable Trend

DBRS Limited (DBRS) has today confirmed the rating on the Series A Senior Unsecured Debentures (the Debentures) of the McGill University Health Centre/Centre universitaire de santé McGill (MUHC or the Hospital) at A (high) with a Stable trend. The Hospital has made significant strides in improving operating performance in the last two years, resulting in a near balanced result in fiscal 2015. The rating continues to be supported by the essentiality of MUHC to the Province of Quebec’s (the Province; rated A (high) with a Stable trend by DBRS) health network, robust provincial funding support and sizable assets of affiliated foundations coupled with rising internal liquidity.

MUHC returned to a near balanced operating position in 2014–2015 after recording a deficit of nearly $73 million or 6.9% of revenues just two years prior, without a meaningful reduction in clinical services or reliance on one-time government funding injections. This notable fiscal improvement coincided with a period of significant transition at MUHC, as the organization completed the complex transition of activities from three hospitals and numerous clinical areas to the new Glen Campus site west of downtown Montréal.

Furthermore, a major overhaul of the Province’s health bureaucracy was initiated in 2015, abolishing the Agence de la Santé et des Services sociaux de Montréal (the Agency), which formerly acted as the intermediary between the Hospital and the Ministère de la Santé et des Services sociaux (the Ministry) for funding and oversight purposes. With the elimination of the regional agencies, MUHC’s board of directors (the Board) was also dissolved by the legislation and is currently pending reconstitution, with the Director General and CEO acting in place of the Board, and with all former members staying on as advisors in the interim period. Despite some uncertainty with respect to the evolution of MUHC’s role in the system and potential changes to the funding formula for Québec hospitals, the elimination of the Agency should strengthen direct ties with the Ministry, potentially resulting in greater efficiencies and consideration of MUHC’s unique role in the health network.

The credit profile has evolved constructively with markedly improved operating performance, as the debt burden related to operating activities declined modestly and remains manageable for the rating. Borrowing related to capital activities that is predominantly serviced by the Province, including obligations tied to the public-private partnership agreement for the new campus, increased notably year over year. DBRS will continue to monitor potential changes to the provincial funding framework or operating environment as the Province grapples with its own fiscal challenges, which could reduce MUHC’s financial flexibility and renew downward pressure on the rating should these result in weaker operating performance or a notable increase in Hospital-supported leverage.

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.

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

The applicable methodology is Rating Canadian Public Hospitals (June 2015), which can be found on our website under Methodologies.