DBRS Morningstar Confirms Windsor Regional Hospital at AA (low), Stable Trend

DBRS Limited (DBRS Morningstar) confirmed its rating on Windsor Regional Hospital’s (WRH or the Hospital) Senior Unsecured Debentures at AA (low) with a Stable trend. The rating reflects WRH's strong operational and financial links to the Province of Ontario (Ontario or the Province; rated AA (low) with a Stable trend by DBRS Morningstar) and the absence of material weaknesses in the Hospital’s governance, operating outlook, leverage, and financial strength.

DBRS Morningstar assigns the same rating to debt issued by an important hospital as to its provincial government, provided that there are no material deficiencies or concerns. DBRS Morningstar believes that the greatest likelihood of implicit support arises from the importance of healthcare to provincial governments, high levels of government funding, and significant control and oversight exercised by provincial governments. The Coronavirus Disease (COVID-19) pandemic has reinforced this view as hospitals remain critically important to the Province's coronavirus response and 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 and loss of some patient and ancillary revenues (such as parking operations) have affected operating results; however, significant provincial funding support to the healthcare sector (see DBRS Morningstar's commentary “Ontario Unveils New Funding for Public Hospitals,” published on March 26, 2021) will offset the deterioration to a large extent. Furthermore, WRH in collaboration with the Ontario Ministry of Health has supported the Province's pandemic response by maintaining intensive care unit capacity and taking out-of-region patients, as well as out-of-province patients at various times throughout the year.

Despite the coronavirus pandemic, WRH reported its second consecutive surplus of $43.2 million in 2020–21, up from $2.9 million in 2019–20. The larger surplus primarily reflects one-time working capital funding as the Province sought to address working capital deficiencies at several hospitals. Excluding this working capital funding and minor nonrecurring professional fees, WRH's surplus would have been $1.3 million, or 0.2% of revenues. For 2021–22, management indicates that the bottom-line operating result is tracking toward a slight deficit through the first six months, although this is somewhat better than initially budgeted.

At March 31, 2021, the Hospital had $244.4 million in debt outstanding. This equates to 42% of revenues, up from 14% of revenues the previous year following issuance of the Series A Debentures. Over the medium term, DBRS Morningstar expects debt to gradually decline as existing debt continues to amortize and no additional external debt issuance is planned.

RATING DRIVERS
A positive rating action would require an upgrade of the Province’s ratings. While a downgrade of Ontario’s ratings would lead to an equal change in the Hospital’s rating, significant changes in operations, management/governance, operating results, leverage, or financial strength could also negatively affect WRH's rating.

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).

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.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at [email protected].

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

DBRS Limited
DBRS Tower, 181 University Avenue, Suite 700
Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577