DBRS Morningstar Confirms Lakeridge Health at AA (low), Stable Trend

DBRS Limited (DBRS Morningstar) confirmed Lakeridge Health’s (the Hospital) Senior Unsecured Debentures rating at AA (low) with a Stable trend. The rating reflects DBRS Morningstar’s view on Lakeridge Health's importance to the Province of Ontario’s (Ontario or the Province; rated AA (low) with a Stable trend by DBRS Morningstar) healthcare system and its strong operational and financial links to Ontario. The rating is also supported by the absence of material weaknesses in the Hospital’s governance, operating performance, leverage, and financial strength.

DBRS Morningstar assigns the same rating to important hospitals as to their provincial governments, provided that there are no material deficiencies or concerns. 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 hospitals that are fundamentally important to the provincial healthcare system. The Coronavirus Disease (COVID-19) pandemic has reinforced the view that hospitals remain critical to the Province's healthcare system as they continue to receive additional financial support and resources.

The impact of the coronavirus pandemic has been significant in 2020–21 as surging coronavirus infections created staffing and capacity constraints on hospitals. Rising costs of operations, high levels of unfunded beds, and loss of some ancillary revenues (such as parking operations) have affected operating results; however, significant provincial funding support to the healthcare sector, including recently announced support (see DBRS Morningstar’s commentary “Ontario Unveils New Funding for Public Hospitals,” March 26, 2021), will offset the deterioration to a large extent. The Hospital now anticipates a balanced result for 2020–21.

Following the Hospital’s issuance of $100.0 million Senior Unsecured Debentures to fund its share of the joint Clinical Information System and several other small capital projects, debt increased to $135.6 million (19.6% of revenue) as at March 31, 2020. For 2020–21, debt has declined modestly as existing debt amortizes. The Hospital established an internal debt retirement fund to repay the Senior Unsecured Debentures.

RATING DRIVERS
A positive or negative rating action will most likely be tied to changes in the Province’s credit rating. For more information about possible rating drivers, please refer to the Province of Ontario rating report dated January 8, 2021. While not anticipated, DBRS Morningstar may consider a lower rating for the Hospital than for the Province if Lakeridge Health experiences significant weakness in operating performance, leverage, or financial strength with no management response or government support.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

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

The principal methodology is Rating Canadian Public Hospitals (March 23, 2021; https://www.dbrsmorningstar.com/research/375734), which can be found on dbrsmorningstar.com under Methodologies & Criteria. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021; https://www.dbrsmorningstar.com/research/373262).

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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