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

DBRS Limited (DBRS) confirmed the Secured Bonds rating of University Health Network (UHN) at AA (low) with a Stable trend. The rating continues to be supported by DBRS’s assessment that UHN is highly important to the Province of Ontario’s (Ontario or the Province; rated AA (low) with a Stable trend) health-care system. As the largest hospital network in Ontario and Canada, UHN receives a high level of public funding and is subject to considerable government oversight. Institutions that are highly important to the health-care system will generally receive the same rating as their provincial government funder, reflecting their strong linkages to the provincial government and the greatest likelihood of implicit support.

UHN is a critical institution with a strong brand and reputation, occupying a strategic position within the provincial health-care system as the largest health network. UHN hospital facilities are in the City of Toronto (rated AA with a Stable trend by DBRS) and provide tertiary and quaternary care to a large segment of the Province. The health network has expertise and mandates in numerous clinical areas, along with significant medical research and teaching capacity. A disruption of health services at UHN would be detrimental to a significant share of the provincial population.

UHN has reported positive, albeit modest, surpluses since 2005–06. For the year ended March 31, 2019, UHN recorded a surplus of $26.2 million, or 1.13% of total revenues. However, the outlook for hospital funding in Ontario is somewhat uncertain following the election of a new provincial government in 2018. The Progressive Conservative government has embarked on a plan to balance the provincial budget by 2023–24, which is expected to entail significant spending restraint and a renewed drive to achieve efficiencies and savings across the public sector. This effort includes further consolidation and integration of the provincial health-care system through the creation of a single health agency and the introduction of integrated-care units. While the Province remains committed to improving care, ongoing funding restraint could put pressure on operating results over the medium term.

UHN’s debt burden declined to $210.6 million as at March 31, 2019. Going forward, a recently updated Strategic Plan and to-be-developed Facilities Master Plan will inform capital investment priorities and financing requirements over the medium term. Given a scaled-back provincial capital plan and the likelihood of limited government contributions, DBRS believes that UHN may require additional debt to fund future capital priorities.

RATING DRIVERS
Any change to the Province’s rating would trigger an equal change to the rating of UHN’s Secured Bonds. Additionally, a severe and sustained deterioration in operating performance or the balance sheet could result in downward rating pressure. As the provincial rating acts as a ceiling on a hospital’s rating, a rating above the Province is not possible.

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

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

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 under Related Documents or by contacting us at info@dbrs.com.

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

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

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.

DBRS Limited
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