DBRS Morningstar Confirms Ratings on Hospital Infrastructure Partners (NOH) Partnership at BBB (high), Stable

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Series A Senior Secured Bonds rating of Hospital Infrastructure Partners (NOH) Partnership (ProjectCo) at BBB (high). Both trends remain Stable. ProjectCo is the entity tasked with the design, construction, financing, operation, and maintenance of the new Oakville Trafalgar Memorial Hospital (the Project) under a 34-year public-private partnership agreement with the Hospital.

The ratings confirmation is supported by the continued success of the implementations of corrective measures earlier in 2018. These measures addressed key operational issues, improving both monitoring and the overall responsiveness to technical issues, factors which triggered DBRS Morningstar’s placement of the ratings Under Review with Negative Implications in May 2016. The notable progress is evidenced by the trends in failure points and deductions over the last 24 months. The potential magnitude of Energy Painshare deductions was also previously identified as a factor contributing to the Project remaining Under Review with Negative Implications until December 2018. However, in discussion with Halton Healthcare Services Corporation (HHS) and Infrastructure Ontario (IO), ProjectCo was provided with an indication that the Energy Painshare deductions should be modest in relation to the liability cap under the service agreement. A working group continues to meet weekly to discuss building operations and performance along with energy-savings opportunities. An agreement has been reached as to the calculation of Painshare/Gainshare with final documentation of the agreement to take place later this year. DBRS Morningstar notes that, at this time, the Energy Painshare deductions have yet to be reviewed by the Senior Creditors’ Technical Advisor.

ProjectCo’s financial metrics continue to perform as expected as deductions have been passed down to the service provider. Similarly, bondholders are insulated by the same pass-down mechanism. As of September 30, 2019 (nine months year to date), failure points totalled 59,640, driven by minor items relating to temperature control, parking equipment, washing equipment, and repairs. Deduction amounts were approximately 8% higher than the same period in 2018. DBRS Morningstar notes that the levels remain well below the project agreement’s monitoring threshold and the deductions incurred have been passed on to the Service Provider, so there has been no impact on payments to ProjectCo or the Bondholders. Expectations for the near term are that any deductions will continue to be passed down to the service provider and ProjectCo will continue to perform as forecast with debt service coverage ratios of 1.25 times.

Continued and sustained reductions in failure points along with a formal agreement with IO and HHS on the Energy Gainshare/Painshare deductions could lead DBRS Morningstar to take a positive rating action in the future. On the other hand, if some existing or new issues become permanent and material, leading to weakened financial metrics and impairment of resiliencies, DBRS Morningstar could take a negative rating action.

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

The principal methodology is Rating Public-Private Partnerships, 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 [email protected].

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

DBRS Morningstar will publish a full report shortly that will provide addi¬tional analytical detail on this rating action. If you are interested in receiving this report, contact us at [email protected] .

For more information on this credit or on this industry, visit www.dbrs.com or contact us at [email protected].

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