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 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 with Bridgepoint Hospital (the Hospital), one of the Province of Ontario’s (rated AA (low) with a Positive 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.

In the 12 months ended August 31, 2023, ProjectCo experienced an increase in deductions and failure points compared with the same period in 2022. The increase can be attributed primarily to elevator downtime during the period. Additionally, the hospital faced a week-long issue with the Oxygen Concentrator in November 2022, further contributing to the accumulation of failure points and deductions. A modest number of plant service events were recorded every month, mainly related to minor activities, such as changing light bulbs or 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 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 operating and maintenance (O&M) activities have continued uninterruptedly. The mandated temporary closures of multiple retail spaces (as 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 pre-pandemic level as foot traffic recovers gradually.

For the 12 months ended August 31, 2023, ProjectCo’s senior debt service coverage ratio (DSCR) was 1.22 times (x), in line with expectations but higher compared with the DSCR of 1.19x in the same period in 2022 as a result of higher-than-expected interest income. ProjectCo is projecting a senior DSCR of about 1.20x for the year ending August 31, 2024, which supports the current rating range.

ProjectCo’s O&M and lifecycle resiliencies of 78% and 87%, respectively, remain supportive of the ratings. DBRS Morningstar could take a negative rating action if ProjectCo were to experience 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.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors 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/416784 (July 4, 2023).

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

DBRS Morningstar applied the following principal methodology:
-- Global Methodology for Rating Public-Private Partnerships (October 11, 2023; https://www.dbrsmorningstar.com/research/421701)

The credit 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.

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 credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

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 credit ratings are under regular surveillance.

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

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