DBRS Confirms EllisDon Infrastructure JBH Inc. at A (low), Stable Trend

DBRS Limited (DBRS) has confirmed the ratings of A (low) with Stable trends on the $137.7 million Series A Short Term Senior Bonds (Series A Bonds) and the $185.8 million Series B Short Term Senior Bonds (Series B Bonds) issued by EllisDon Infrastructure JBH Inc. (ProjectCo), the special-purpose entity created to design, build and finance the construction of a new tower (the Tower) and refurbishment of portions of the existing hospital in Burlington, Ontario (the Project), under a 45-month Project Agreement (PA) with the Joseph Brant Hospital (JBH or the Hospital).

As of the end of September 2016, the Project was in its 21st month of a 43-month schedule and nearly 58% complete, as measured by the gross work completed to the contract price. The cumulative value of work is 7% behind the maximum drawdown schedule, 37% of which is attributable to the renovation program revisions and delays to the pharmacy, food preparation area and central sterilization reprocessing (CSR) works on account of unforeseen subgrade conditions. The Lenders’ Technical Advisor (LTA) has noted that these are not on the critical path for the Tower’s interim substantial completion date, although the impact on subsequent works linked to the completion of these could impact the substantial completion date, with schedule impact still to be confirmed. The delay notices served by ProjectCo in August 2016 indicate delay of around four to five months, but it is understood that the delays have been partially mitigated and ProjectCo continues working with the Hospital toward a solution. DBRS will closely monitor the progress of the work and notes that if the delays continue to persist without any appropriate relief, there could be downward pressure on the rating.

The works on the new Tower are generally progressing according to the schedule. The superstructure was completed by April 2016, with curtain walling largely complete, and ongoing activities include metal paneling, mechanical and electrical works, elevator installation and finishes. Although there has been resequencing of the building envelope trades and delay in the floor finishes, contributing to approximately 41% of the 7% shortfall, these are not on the critical path and the LTA has indicated that the Tower Interim Completion Date is expected to be met. Commissioning work for the Tower has started and Tower occupancy is aimed for the summer of 2017.

The ratings continue to be underpinned by the sound credit quality of the construction contractor and its parent company, a comprehensive security package and the relatively straightforward nature of the construction task. DBRS also views the stream of completion payments to be received from the Hospital to be low-risk in nature. However, the ratings are constrained by the typical uncertainties regarding construction adjacent to an existing operating hospital and the limited resources of ProjectCo to weather unexpected shocks. As there is no service phase, the A (low) ratings have been assigned solely on the basis of the construction phase rating.

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 (March 2016), which can be found on our website under Methodologies.