Morningstar DBRS Confirms Plenary Health Hamilton LP Credit Ratings at "A" With Stable Trends

DBRS Limited (Morningstar DBRS) confirmed the Issuer Rating and Long-Term Senior Bonds (the Long-Term Bonds) credit rating of Plenary Health Hamilton LP (ProjectCo) at "A" with Stable trends. ProjectCo is the special-purpose entity created to design, build, finance, and maintain a 305-bed mental health facility (the Project) under a 33-year public-private partnership (PPP) with St. Joseph's Healthcare Hamilton (the Hospital).

The Project successfully achieved substantial completion on the target date of December 6, 2013, and achieved final completion on December 22, 2017. The Project is now in its 12th year of the 30-year service phase, during which Honeywell Limited (Honeywell or the Service Provider) performs all facilities management (FM) services as well as lifecycle services on behalf of ProjectCo in order to return the facility to a state of good repair upon expiry of the Project Agreement (PA).

KEY CREDIT RATING CONSIDERATIONS
The facility operations continue to be stable, with failure points and deductions being well below the threshold limits. The availability payments have been steady, and the ProjectCo indicated that the Service Provider and the Hospital maintained a good working relationship with no ongoing disputes. During the service phase, the ProjectCo is entitled to fixed service payments for keeping the Project available, providing stable cash flow to the ProjectCo. Additionally, the energy gainshare/painshare amount is passed down to Honeywell.

CREDIT RATING DRIVERS
Material deductions on account of performance-related failures during the service phase could lead to a negative credit rating action. The potential for a positive credit rating action remains limited at the current credit ratings, given the Project's resiliency levels.

FINANCIAL OUTLOOK
As of the last compliance certificate for the last 12 months ended November 30, 2024, the debt service coverage ratio (DSCR) was 1.25 times (x), which is above the projected DSCR of 1.22x because of higher interest income for the reporting period. As all FM and lifecycle services are passed down to Honeywell on a back-to-back basis, Morningstar DBRS expects the ProjectCo to maintain the expected minimum DSCR of 1.22x. As per ProjectCo, there has been no change to the operating and maintenance (O&M) and lifecycle budgets, thus the expected O&M and lifecycle breakeven ratios remain 51.8% and 46.1%, respectively.

CREDIT RATING RATIONALE
The credit ratings are supported by strengths that include (1) experienced service provider, and (2) lifecycle inspection and reserving mechanism. The challenges include (1) relatively low resilience to repricing of FM and lifecycle services for the credit ratings.

ENVIRONMENTAL, SOCIAL, AND 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 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 Driver Factors
In the analysis of ProjectCo, the relative weighting of the Rating Driver factors listed in the Part One - Rating Availability-Based PPP of the methodology was approximately equal.

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

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

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 ratings were initiated at the request of the rated entity.

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

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

These are solicited credit ratings.

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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