DBRS Morningstar Confirms McGill University Health Centre/Centre universitaire de santé McGill at AA (low), Stable Trend

DBRS Limited (DBRS Morningstar) confirmed its rating of AA (low) with a Stable trend on the Series A Senior Unsecured Debentures of McGill University Health Centre/Centre universitaire de santé McGill (MUHC or the Hospital).

DBRS Morningstar assigns highly important hospitals with the same rating as their provincial governments, provided no material deficiencies or concerns have been identified. This practice reflects DBRS Morningstar’s view that there is the greatest likelihood of support and thus the strongest linkage to the provincial credit profile for those hospitals that are fundamentally important to the provincial healthcare system. MUHC is among the largest hospital networks in Canada, providing specialized care to over 1.9 million Québec residents.

MUHC's financial situation has stabilized in recent years. Following a period of persistent losses, the Hospital effectively reported a balanced operating result in 2019–20. The Hospital reported a marginal deficit of $2.8 million in 2019–20, compared with a deficit of $11.5 million in the previous year.

The Coronavirus Disease (COVID-19) pandemic prompted hospitals to reduce non-essential activities to limit the spread the coronavirus and to provide increased capacity for coronavirus patients. Provincial directives continue to require reduced capacity, though operations have begun to normalize with non-essential activities resuming. The Province of Québec (the Province or Québec; rated AA (low) with a Stable trend by DBRS Morningstar) continues to reimburse hospitals for pandemic-related costs and has not reduced general operating funding because of lower patient volumes/procedures. Consequently, the pandemic has not had a material adverse financial impact on MUHC’s 2020–21 budget outlook. Further, there appears to be the strong possibility of additional funding support from the Province if pandemic-related costs, such as protective equipment, overtime pay, infrastructure needs to maintain physical distancing, and lower non-essential case volumes, persist.

The medium-term outlook is less clear. The significant deterioration in the provincial budget outlook suggests operating funding for public sector entities may come under pressure over the medium term.

MUHC has experienced several governance and management challenges in past years, but these have now largely been addressed. Dr. Pierre Gfeller (appointed the permanent President and Executive Director in 2018) has sought to rebuild trust and relationships with many key stakeholders and introduced several management and operational changes. In June 2020, the Province announced a new Minister of Health and Social Services, Christian Dubé, who has extensive experience in financial management and system improvements. MUHC continues to work closely with the Province on pandemic response, future funding, and optimization initiatives.

RATING DRIVERS
A positive or negative rating action will most likely be tied to changes in the Province’s Issuer Rating and Long-Term Debt rating. For more information about possible rating drivers, please refer to the Province of Québec Rating Report dated August 5, 2020.

ESG CONSIDERATIONS
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 Canadian Public Hospitals (April 20, 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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