Morningstar DBRS Confirms Integrated Team Solutions SJHC Partnership Credit Ratings at A (low) With Stable Trends

DBRS Limited (Morningstar DBRS) confirmed Integrated Team Solutions SJHC Partnership's (ProjectCo) Issuer Rating and the credit rating on ProjectCo's Series A Senior Bonds (the Bonds) at A (low) with Stable trends. ProjectCo is the special-purpose entity (SPE) created to design, build, finance, and maintain two new mental health facilities in London, Ontario, and St. Thomas, Ontario (the Project), under a 32-year project agreement (PA) with St. Joseph's Health Care London (SJHC or the Hospital). Honeywell, a subsidiary of Honeywell International Inc. (rated "A", Under Review with Negative Implications), assumes, on a back-to-back basis, all of ProjectCo's facility maintenance and lifecycle responsibilities through a fixed-price contract through the operating phase.

KEY CREDIT RATING CONSIDERATIONS
Operations have continued smoothly during 2024 without material deductions. Lifecycle plan remains on track for both facilities, following the PA. The lender's technical review, which takes place every five years, is ongoing; the lender's technical advisor (LTA) completed the site visit at the date of this press release. The final report is expected in late mid-2025; ProjectCo does not expect any major findings that could have an impact on the Project. The relationship between ProjectCo, the Service Provider, and the Hospital remains collaborative, with no material issues reported.

The Project received the energy gainshare payment for 2023-24 as expected. The energy consumption for the year ended January 31, 2025 (Energy Year 10), is again expected to be lower than target, resulting in energy gainshare this year. In accordance with the Service Contract, any energy gainshare or painshare adjustment will be passed down to Honeywell.

CREDIT RATING DRIVERS
Morningstar DBRS could take a negative rating action if the Project's operating performance deteriorates materially, leading to an accumulation of failure points that could potentially trigger various contractual default thresholds or a replacement of Honeywell. Because of the fixed-price service contract, there is limited upside on the Project's financial metrics that could support a positive rating action.

FINANCIAL OUTLOOK
The Project's debt service coverage ratio (DSCR) for the year ended February 29, 2025, was 1.21 times (x), same as the projected DSCR. For the next 12 months, the DSCR is expected to be 1.21x. Operating and maintenance and lifecycle resiliencies remain in line with the financial-close financial model at 47% and 43%, respectively.

CREDIT RATING RATIONALE
The credit ratings are supported by strengths that include (1) a strong Service Provider, and (2) the lifecycle monitoring and reserving process. The main challenge is the service provider replacement risk.

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.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to our Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of our website.

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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