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

DBRS Limited (DBRS Morningstar) confirmed Lakeridge Health’s (the Hospital) Senior Unsecured Debentures (the Series A Debentures) rating at AA (low) with a Stable trend. The rating confirmation 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 confirmation 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 debt issued by important hospitals as to their provincial governments, 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 the view that hospitals remain critically important to the Province's coronavirus response and continue to receive additional financial support and resources.

Lakeridge Health anticipates balanced results in the 2021–22 fiscal year. The coronavirus pandemic had a significant operational impact on most hospitals in the Province in the form of rising costs of operations, high levels of unfunded beds, staffing and capacity constraints, and loss of some ancillary revenues (such as parking operations), but provincial funding supports continue to mitigate these impacts and insulate hospitals from material financial deterioration. The Hospital is yet to present its 2022–23 budget but prudently expects balanced results on an operating basis.

As at March 31, 2021, debt of $132.5 million included Series A unsecured debentures and other unsecured obligations. The majority of the debt relates to the implementation of the new Clinical Information System and other smaller capital contributions. While the Hospital may incur modest amounts of new loans related to planned capital projects over the medium term, it will continue to prioritize financial sustainability. The Hospital established an internal debt retirement fund to repay the Series A 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 July 6, 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 22, 2022; https://www.dbrsmorningstar.com/research/393975/rating-canadian-public-hospitals), 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.

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

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