Morningstar DBRS Confirms AtkinsRéalis Innisfree McGill Finance Inc. (Formerly SNC-Lavalin Innisfree McGill Finance Inc.) Credit Ratings at A (low), Stable Trends

DBRS Limited (Morningstar DBRS) confirmed the Issuer Rating, the Series A Senior Amortizing Bonds rating, and the Series B Senior Amortizing Bonds rating of AtkinsRéalis Innisfree McGill Finance Inc. (the Issuer; formerly SNC-Lavalin Innisfree McGill Finance Inc.), the financing vehicle unconditionally guaranteed by McGill Healthcare Infrastructure Group, G.P. (ProjectCo) and its General Partners, at A (low) with Stable trends. ProjectCo is the special-purpose vehicle (SPV) responsible for the design, construction, financing, and maintenance of a new 217,500-square-metre hospital under a 34.3-year public-private partnership (PPP or the Project) with McGill University Health Centre/Centre Universitaire de Santé McGill (the Hospital; rated AA (low) with a Stable trend by Morningstar DBRS). The Hospital achieved Global Substantial Completion on November 5, 2014.

Morningstar DBRS notes that, effective December 10, 2024, the corporate name of SNC-Lavalin Innisfree McGill Finance Inc. is being changed to AtkinsRéalis Innisfree McGill Finance Inc.

KEY CREDIT RATING CONSIDERATIONS
For the 12-month reporting period from October 2023 to September 2024, very low Hospital-levied deductions were reported for service performance. Failure-point accumulation is well within Project Agreement thresholds for warning notices, subcontractor replacement, and Events of Default. Performance deductions are passed down to AtkinsRéalis O&M Inc. (AtkinsRéalis O&M) from ProjectCo. Discussions related to the renewal of the subcontract for facility security services are still ongoing and expected to be resolved in H1 2025.

The energy consumption in the previous reporting period resulted in no gainshare/painshare payment between the Hospital and ProjectCo. Energy Year #8 (December 2023 to November 2024) is on track for no gainshare or painshare payment as energy consumption is expected to meet consumption targets.

The Facilities Management Services Contract and the Lifecycle Contract both include a mechanism to review cumulative lifecycle spending against lifecycle payments, allowing ProjectCo to retain funds from AtkinsRéalis O&M and Johnson Controls Quebec Limited (JCQL) if there is a discrepancy. Following a review of both 10th-year lifecycle reports, ProjectCo currently retains $3.66 million ($5.75 million in 2023) of scheduled payments identified as being in excess of works performed. Mott MacDonald issued the latest report in December 2024 and noted that the Project remains at a steady state and the facility appears to be well maintained.

CREDIT RATING DRIVERS
An upgrade to the credit ratings is unlikely in the near term given the limited upside revenue potential for an availability-based public private partnership transaction. Negative credit rating pressure could result if the Project exhibits material deterioration of its operating and financial performance, leading to weakened credit metrics.

FINANCIAL OUTLOOK
The debt service coverage ratio (DSCR) was 1.36 times (x) for the trailing 12 months ended June 30, 2024, compared with the projected minimum DSCR of 1.27x. Main reasons were higher interest rates, lower SPV costs, and good retail performance.

CREDIT RATING RATIONALE
The credit rating strengths of ProjectCo are (1) two solid contractors (AtkinsRéalis O&M and JCQL), (2) low public-sector counterparty credit risk, and (3) lifecycle inspection and reserving mechanism. The main challenge is the relatively small security package.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS

There were no Environmental/Social/Governance factors that had a significant or relevant 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 Factors in Credit Ratings (August 13, 2024) https://dbrs.morningstar.com/research/437781.

RATING DRIVERS AND FINANCIAL RISK ASSESSMENT (FRA)

(A) Weighting of Rating Drivers
In the analysis of the Issuer, the relative weighting of the Rating Driver factors listed in the methodology was approximately equal.

(B) Weighting of FRA Factors
In the analysis of the Issuer, the FRA factors listed in Part One - Rating Availability-Based PPP of the methodology was considered more important.
-- O&M and lifecycle breakeven ratios

(C) Weighting of the Rating Drivers and the FRA
In the analysis of the Issuer, the FRA carries greater weight than the Rating Drivers.

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

Morningstar DBRS applied the following principal methodology:

Global Methodology for Rating Public-Private Partnerships (August 13, 2024)
https://dbrs.morningstar.com/research/437820

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 following methodology has also been applied:

Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024)
https://dbrs.morningstar.com/research/437781

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 https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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