DBRS Confirms University Health Network at AA (low), Stable Trend

DBRS Limited (DBRS) confirmed the Secured Bonds rating of University Health Network (the Hospital or UHN) at AA (low) with a Stable trend. The rating is based on DBRS’s assessment that UHN is highly essential to the Province of Ontario’s (the Province; rated AA (low) with a Stable trend) health-care system, with a high level of public funding support and government oversight. Institutions that are deemed to be highly essential to the provincial health-care system will generally be rated in line with the provincial government, reflecting the greatest likelihood of implicit support and strongest linkage to the credit profile of the government funder.

DBRS considers UHN to be a flagship provincial institution with a strong brand and reputation, occupying a strategic position within the provincial and national health-care system as the largest hospital network in Canada. UHN facilities are located within the downtown core of the City of Toronto, Canada’s largest city. UHN provides tertiary care to a large geographic area of the Province and has highly specialized expertise and mandates in numerous clinical areas, along with significant medical research and teaching capacity. A disruption of health services at UHN would be highly detrimental to a significant share of the population.

DBRS considers the operating environment to be constrained but stable, and expects that modest reinvestment in the hospital sector will continue as the Province returns to a balanced budgetary position in 2017–18. Operating performance at the Hospital remains strong, with UHN having recorded a surplus of $20.9 million for the year-ended March 31, 2017, or a 0.96% operating margin. UHN remains compliant with all covenants of the Secured Bonds. The Hospital’s debt burden continues to track down, having reached $251.0 million at YE2017. There are no plans for new external borrowing in the near term, although significant capital requirements related to IT infrastructure and clinical capacity may necessitate some borrowing over the medium term.

RATING DRIVERS
Downward pressure on the rating, although not anticipated, could come from a change to the rating of the Province, or from a material deterioration in operating performance or significant increase in debt that stresses UHN’s ability to meet its debt covenants or deliver patient services. Positive rating action is not contemplated, as the rating of the Hospital is already in line with that of its provincial funder, though an upgrade of the Province would result in an upgrade of the Secured Bonds.

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 principal methodology is Rating Canadian Public Hospitals, which can be found on dbrs.com under Methodologies.

The rated entity or its related entities 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.