DBRS Morningstar Confirms Plenary Health Bridgepoint LP at “A”, Stable Trends

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Senior Amortizing Bonds (Series A) rating of Plenary Health Bridgepoint LP (ProjectCo) at “A”. All trends are Stable.

ProjectCo is the special-purpose vehicle (SPV) created to design, build, finance, and maintain a new 472-bed hospital (the Project) in Toronto and refurbish the adjacent historic Don Jail for administrative purposes under a 33.6-year Project Agreement (PA) with Bridgepoint Hospital (the Hospital), one of the Province of Ontario’s (Ontario or the Province; rated AA (low) with a Stable trend by DBRS Morningstar) largest complex-care institutions. ProjectCo’s responsibilities during the service phase have been largely passed down to Johnson Controls Canada LP (JCLP or the Service Provider) under an indexed fixed-price contract.

After keeping more spares at site and allowing technicians from OTIS to visit every week to perform required maintenance works, the Service Provider seemed to have successfully stopped the deductions and failure points associated with elevator downtime. For the 12 months ended September 30, 2022, ProjectCo incurred no deductions and the total number of failure points decreased compared with the same period in 2021. A modest number of plant service events were recorded every month, mainly related to minor activities such as changing light bulbs, repairing windows, blinds, or wall damages. The total number of failure points remains well below the Facilities Management (FM) Contract's warning notice and monitoring notice thresholds.

ProjectCo indicated that the condition of the facility remains relatively good and the lifecycle spending has been in line with the financial model at financial close. Furthermore, ProjectCo noted that the actual energy consumption has been lower than the target level and the associated energy gainshare will be passed down to JCLP.

Since the beginning of the pandemic, the Project has not been materially affected by the various health and safety measures and protocols as all the operating and maintenance (O&M) activities have continued uninterruptedly. The mandated temporary closures of multiple retail spaces (nonessential workplaces) in the facility reduced ProjectCo's rental income, although DBRS Morningstar understands that such closures have not resulted in any failure points and the forgone rental income represents less than 1% of the monthly service payment, which is immaterial. Even though the Hospital-imposed access restrictions have been lifted, the retail revenue remains below the prepandemic level as foot traffic recovers gradually. On March 28, 2022, the retail food services vendor transitioned from Aramark to Compass with an increase in food service offerings.

For the 12 months ended August 31, 2022, ProjectCo’s senior debt service coverage ratio (DSCR) was 1.19 times (x), in line with expectation but slightly lower than ProjectCo's forecast at financial close as a result of the lower-than-expected interest income and retail revenue, and slightly higher-than-expected insurance cost. ProjectCo is projecting a senior DSCR of about 1.20x for the year ending August 31, 2023, in line with what was projected at financial close.

ProjectCo’s O&M and lifecycle resiliencies of 78% and 87%, respectively, remain supportive of the ratings. DBRS Morningstar could take negative rating action if ProjectCo experiences material operational challenges resulting in a material accumulation of failure points on a sustained basis. DBRS Morningstar believes a positive rating action is unlikely given the fixed revenue stream from the Hospital and the fixed-priced FM Contract with JCLP.

There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

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/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (May 17, 2022).

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

The principal methodology is Rating Public-Private Partnerships (August 30, 2022; https://www.dbrsmorningstar.com/research/402155), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

A description of how DBRS Morningstar analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/397223/interplay-of-global-corporate-finance-rating-methodologies-when-analyzing-corporate-finance-transactions.

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.

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].

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