DBRS Morningstar Confirms McGill University Health Centre at AA (low), Stable Trend

DBRS Limited (DBRS Morningstar) confirmed its rating on the Series A Senior Unsecured Debentures (the Debentures) of McGill University Health Centre/Centre universitaire de santé McGill (MUHC or the Hospital) at AA (low) with a Stable trend. The rating reflects MUHC's strong operational and financial links to the Province of Québec (the Province; rated AA (low) with a Stable trend by DBRS Morningstar) and the absence of any material weakness in the Hospital's governance, operating performance, 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. 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. 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.

Operating results improved during 2021–22 after a dip in performance in the prior year. MUHC reported a deficit of $7.8 million compared with the prior-year deficit of $18.0 million, benefitting from some incremental government funding and cost efficiency initiatives. For 2022–23, despite cost-related challenges including significant inflationary pressures, MUHC now expects that the bottom-line results will likely be balanced if not a slight surplus, assuming continuity in pandemic-related reimbursements.

Although the number of hospitalizations from the pandemic has subsided, hospital operations continue to be affected by sudden outbursts of flu and other coronavirus-related cases. However, the financial impact on the Hospital has so far been manageable given all coronavirus-related costs have been reimbursed on an ongoing basis, benefitting from the tight linkage to the Province and provincial responsibility for healthcare. Over the past few months, the Hospital has increased its focus on ramping up elective and/or deferred procedures to pre-pandemic levels, in line with the Ministry of Health and Social Services’ plan to ramp up surgical activity and reduce the substantial waitlist. The Hospital will also likely benefit from the latest round of funding announced by the federal government.

MUHC has experienced several governance and management challenges in past years, but they have now largely been addressed. In January 2023, Dr. Lucie Opatrny was elected as the new permanent president and executive director (PED), following the retirement of Dr. Pierre Gfeller. Following a period of substantial instability, the board has been in place for the past five years, and DBRS Morningstar believes that the new PED and the board will continue to guide the Hospital's operations through the currently challenging operating environment.

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 July 20, 2022.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
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 (May 17, 2022).

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

The principal methodology applicable to the rating is Rating Canadian Public Hospitals (March 22, 2022; https://www.dbrsmorningstar.com/research/393975).

The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

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 conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.

DBRS Morningstar will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at [email protected].

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com or contact us at [email protected].

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