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

DBRS Limited (Morningstar DBRS) confirmed the credit rating on Lakeridge Health's (Lakeridge or the Hospital) Senior Unsecured Debentures (the Series A Debentures) at AA (low) with a Positive trend. The rating reflects Morningstar DBRS' view of the Hospital's importance to the healthcare system in the Province of Ontario (Ontario or the Province; rated AA (low) with a Positive trend) and its strong operational and financial links to the Province. The rating is also supported by the absence of material weaknesses in the Hospital's governance, operating performance, leverage, and financial strength.

KEY CREDIT RATING CONSIDERATIONS
Morningstar DBRS 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. As such, Morningstar DBRS assigns the same rating to debt issued by important hospitals as to their provincial governments, provided that there are no material deficiencies or concerns.

The Hospital has reported consecutive deficits for fiscal years ending March 31, 2022 and 2023. Lakeridge anticipates ongoing pressures from rising costs and significant healthcare needs in the Province will likely result in operating deficits continuing in fiscal years 2023-24 and 2024-25. The Hospital plans to continue working with the provincial government to develop mitigation strategies and address funding pressures. In addition, Ontario's 2024 budget indicated reasonable base funding increases to hospitals in the Province.

Over the near to medium term, the hospital does not plan to issue material new debt ($139.3 million as at March 31, 2023) and will continue to incur modest new loans related to planned capital projects.

CREDIT 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 Morningstar DBRS's rating report on the Province of Ontario, dated December 18, 2023. Although unlikely, Morningstar DBRS may consider a lower rating for the Hospital than for the Province if Lakeridge experiences significant sustained weakness in operating performance, leverage, or financial strength with no management response or government support.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a relevant or significant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024) https://dbrs.morningstar.com/research/427030/morningstar-dbrs-criteria:-approach-to-environmental,-social,-and-governance-risk-factors-in-credit-ratings.

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

Morningstar DBRS applied the following principal methodology:

Rating Canadian Public Hospitals (March 21, 2024)
https://dbrs.morningstar.com/research/429932/rating-canadian-public-hospitals

Morningstar DBRS credit ratings may use one or more sections of the Morningstar DBRS Global Corporate Criteria (April 15, 2024; https://dbrs.morningstar.com/research/431186), which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.

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

A description of how Morningstar DBRS analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/431153.

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 info-DBRS@morningstar.com.

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.

Morningstar DBRS 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. Morningstar DBRS trends and credit ratings are under regular surveillance.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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