Morningstar DBRS Confirms Plenary Health Care Partnerships Humber LP's Credit Ratings at A (low) With Negative Trends

DBRS Limited (Morningstar DBRS) confirmed Plenary Health Care Partnerships Humber LP's (ProjectCo) Issuer Rating and the credit ratings on the Series A and Series B Long-Term Senior Bonds at A (low). The trends on all credit ratings are Negative. ProjectCo is a special-purpose vehicle created to design, build, finance, and maintain a new 1.7 million-square-foot (sf) hospital facility (the Project) in northwestern Toronto under a 33.6-year project agreement (PA) with Humber River Hospital (HRH or the Hospital). The Project is in its 118th month of the 30-year service phase after achieving substantial completion on May 11, 2015.

KEY CREDIT RATING CONSIDERATIONS
The Negative trends stem from repeated disagreements between ProjectCo and HRH over failure points and deductions, resulting in lengthy disputes that could strain the relationship between the two entities. As of March 2025, there are two disputes outstanding: over the February 2021 performance monitoring report (PMR) and over the December 2023 PMR. Both disputes are following the dispute resolution procedure (DRP) established in the PA. The Negative trend also reflects uncertainty about how the December 2023 dispute can be resolved; although unlikely, if the DRP results in the Hospital being entitled to replace Johnson Controls Canada LP (JCCLP or the Service Provider), there could be a material impact on the Project's key financial metrics.

General operations were smooth in 2024, with failure points and deductions well below thresholds. Morningstar DBRS notes that deductions related to the service phase have been fully passed down to the Service Provider without any financial impact on ProjectCo. Morningstar DBRS continues to monitor the progress of discussions related to the pending disputes. The relationship between ProjectCo, the Service Provider, and the Hospital remains collaborative.

CREDIT RATING DRIVERS
Morningstar DBRS could take a negative credit rating action if the Hospital were to exercise its right to terminate the Service Provider under clause 42.5 of the PA, or if service performance were to materially deteriorate with high levels of failure points or deductions. Morningstar DBRS may change the Negative trend back to Stable if it becomes apparent that the Service Provider will not be replaced and the relationship with the Hospital is normalized, evidenced by the absence of new disputes that materially and negatively affect the Project's operating environment.

FINANCIAL OUTLOOK
Per the latest compliance certificate, the debt service coverage ratio (DSCR) for the 12-month period ended November 30, 2024, was 1.25 times (x), which is the minimum DSCR expected over the life of the Project, as per the financial model, with lifecycle and operating and maintenance (O&M) resiliencies of 59% and 49%, respectively.

CREDIT RATING RATIONALE
The credit ratings are supported by the lifecycle inspection and reserving mechanism. The main challenges are the relatively low resilience to repricing of O&M services and ProjectCo's somewhat strained relationship with the Hospital.

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.

CREDIT RATING DRIVERS AND FINANCIAL RISK ASSESSMENT (FRA)

A) Weighting of Credit Rating Driver Factors
In the analysis of the Issuer, 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 the Issuer, the following FRA factor listed in Part One - Rating Availability-Based PPP of the methodology was considered more important: lifecycle & O&M breakeven ratios.
C) Weighting of the Credit Rating Drivers and the FRA
In the analysis of the Issuer, the FRA carries greater weight than the Credit 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 (February 3, 2025; https://dbrs.morningstar.com/research/447186), 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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