DBRS Morningstar Confirms Women’s College Partnership at “A” with Stable Trends

DBRS Limited (DBRS Morningstar) confirmed Women’s College Partnership’s (ProjectCo) Issuer Rating and the rating on the $207.3 million Senior Secured Bonds (the Bonds) at “A” with Stable trends. ProjectCo is the special-purpose entity (SPE) created for the design, construction, financing, maintenance, and rehabilitation of Women’s College Hospital in Toronto under a Project Agreement (PA) with Women’s College Hospital (WCH or the Hospital) for a term of 30 years from scheduled interim completion.

The Project achieved interim completion on May 14, 2013; substantial completion on September 24, 2015; and final completion on April 4, 2019. The 30-year operating phase began on the achievement of interim completion. ProjectCo has subcontracted its operating and maintenance (O&M) responsibilities under the PA to Black & McDonald Ltd. (the Service Provider) under a fixed-price, full-term service contract. Lifecycle risk is retained by ProjectCo.

Operational performance since interim completion has generally been good, with a relatively low level of failure points and deductions related to service performance. There have been some instances of elevator unavailability, though partial relief has been granted by the Hospital. During 2019, failure points totalled 1,486 and deductions amounted to approximately $37,000, both after relief granted by the Hospital. During the first six months of 2020, failure points totalled 260, while deductions amounted to approximately $21,000. DBRS Morningstar notes that these levels are significantly lower than the PA’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 Bondholders.

ProjectCo is working with the Construction Contractor to close out two minor warranty items that are expected to be completed before the start of winter of 2020. The base year assessment for energy pain-share/gain-share is not yet established, and there has been no adjustment in monthly service payments to ProjectCo because of energy usage to date. Discussions are ongoing between the parties, with ProjectCo having provided the Hospital with a summary of pain-share/gain-share calculations for review to facilitate discussions going forward. ProjectCo and WCH continue to employ energy saving measures as well as investigating new energy reduction possibilities. The Hospital was awarded the Greening Health Care (GHC) award, which acknowledges hospitals that have reduced their overall energy consumption by at least 5% since joining the GHC program. ProjectCo indicated that the relationship among WCH, ProjectCo, and the Service Provider is good, without any ongoing disputes.

In March 2020, the provincial health authorities directed WCH to take containment measures related to the Coronavirus Disease (COVID-19) pandemic, securing resources that would enable the Hospital to operate at 50% of pre-pandemic foot traffic capacity. These measures have been implemented, including a fully operational COVID-19 Assessment Centre and a plan to quickly transition the Acute Ambulatory Care Unit area to an Inpatient Care Facility if needed. Several clinics have reopened while most non-clinical activities have been postponed or cancelled. WCH has applied for Canada Emergency Commercial Rent Assistance on behalf of the retailers operating in the hospital who qualified for the program. ProjectCo confirms the hospital continues to operate smoothly and the Hospital will continue utilizing all coronavirus prevention measures through 2020.

The Project features a minimum debt service coverage ratio of 1.44 times (x) with an equity lock-up of 1.15x, O&M resilience of 83.9%, and lifecycle resilience of 76.5%, all of which support the “A” ratings. While a positive rating action is unlikely, negative rating pressure could result from material deterioration in ProjectCo’s operating and financial performance.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

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

The principal methodology is Rating Public-Private Partnerships (August 19, 2020), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

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.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.

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

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