DBRS Confirms McGill University Health Centre/Centre universitaire de santé McGill at A (high), Stable Trend

DBRS Limited (DBRS) has today confirmed the rating on the Series A Senior Unsecured Debentures of the McGill University Health Centre/Centre universitaire de santé McGill (MUHC or the Hospital) at A (high) with a Stable trend. The rating continues to be supported by the essentiality of MUHC to the Province of Québec’s (the Province; rated A (high) with a Stable trend by DBRS) health network, a high level of provincial funding support and oversight as well as sizable assets of affiliated foundations.

After a notable improvement in operating performance in the prior year, the Hospital returned to a $42 million deficit position in 2015-16. The deficit was primarily a result of costs associated with the transition to the Glen Campus site (the Glen site) and a budget revision from the Province based on the accelerated application of its clinical plan. Although the Hospital routinely operates at bed capacity above 90%, the clinical plan and associated funding structure requires MUHC to operate at 85% bed capacity to avoid a deficit. The application of this budget for the first year of operations at the Glen site resulted in an effective reduction of $37 million in grant revenues against previous budget expectations, $33 million of which will be recurring, requiring modest bed and ward closures. In 2016-17, a sizable budget gap was carried forward from the prior year which, when combined with additional funding compression as well as offsetting savings and efficiency measures, is expected to result in a final operating deficit of $17 million. With no additional funding contemplated to address the complexity of care at MUHC, DBRS anticipates that the highly constrained funding environment will make it difficult for MUHC to achieve a balanced operating position absent more difficult budget measures, which could further affect patient services.

DBRS notes that, as part of a broader strategic orientation process and the recruitment of a permanent President and Chief Executive Officer, MUHC has launched a formal dialogue with two integrated health and social service centres affiliated with McGill University in Montréal that were created under the recent reforms to the health administrative structures in the Province. DBRS will monitor developments between the organizations relating to a potential merger or other arrangement, which could have credit implications for MUHC.

Rating Drivers
Positive rating action is not contemplated, given that the Hospital’s rating of A (high) is already at its provincial government funder’s level. Downward pressure on the rating may occur if DBRS judges that provincial support of MUHC has materially weakened, resulting in eroded operating performance and an unsustainable hospital-supported debt burden over the medium to long term. Although not currently contemplated, a negative rating action on the Province would also lead to a downgrade of MUHC.

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 Canadian Public Hospitals, which can be found on our website under Methodologies.

The rated entity did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.

The full report providing additional analytical detail is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.

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