Morningstar DBRS Assigns Credit Rating of AA to Lakeridge Health, Stable Trend

DBRS Limited (Morningstar DBRS) assigned an Issuer Rating of AA with a Stable trend to Lakeridge Health (LH or the Organization) and confirmed the credit rating on the Organization's Senior Unsecured Debentures at AA with a Stable trend.

KEY CREDIT RATING CONSIDERATIONS
The credit ratings are supported by the assessment that government support is very strong for LH. The Organization is significantly important to the healthcare system of the Province of Ontario (Ontario or the Province) as evidenced by its position as one of the largest community hospitals in the Province and by the size of the community it serves. This strong government support would mitigate any potential weakness arising from LH's own intrinsic assessment, such as any material weaknesses in the LH's competitive position, its debt and liquidity profile, and its financial metrics.

CREDIT RATING DRIVERS
A change in Ontario's credit ratings would lead to a commensurate change in LH's credit rating.

The credit rating would be downgraded if the assessment of government support were to weaken or if LH experienced a material deficiency or weakness in its intrinsic assessment, such as a sustained deterioration in its financial performance, without management response.

CREDIT RATING RATIONALE
The Hospital benefits from very strong government support. LH is a large community hospital and the sole provider of acute-care services for much of the Durham Region. A disruption in healthcare services at LH would be detrimental to a significant share of the provincial population and to numerous clinical mandates in the region and the Province, particularly given patient volume and capacity pressures across Ontario. Ontario provides significant funding and strong oversight for the Hospital's operations. The healthcare sector remains a critical priority for Ontario, and the provincial government has a track record of providing additional funding to hospitals when necessary.

Lakeridge Health offers a comprehensive range of acute, ambulatory, and long-term care services in Ontario. The Organization serves much of Durham Region, including the communities of Pickering, Ajax, Whitby, Oshawa, Bowmanville/Clarington, and Port Perry/Scugog. With more affordable housing and improving regional rail services, Durham Region is one of the fastest-growing areas in Ontario, which will likely prompt growth in the Organization's service offerings and ongoing high patient volumes over the coming decades.

LH has reported consecutive deficits for the past three years, mainly owing to increasing costs related to drugs and supplies and the rise in compensation expenses in recent years. LH anticipates operating pressures to continue through F2026. Ontario and LH continue to work toward addressing funding, capacity issues, and delivering healthcare more efficiently.

Morningstar DBRS assigned the Issuer Rating in line with its application of the "Global Methodology for Rating Public and Not-For-Profit Hospitals and Health Systems." For more information, please visit https://dbrs.morningstar.com/research/444620.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental, Social, or 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

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

Morningstar DBRS applied the following principal methodology:

Global Methodology for Rating Public and Not-For-Profit Hospitals and Health Systems (December 16, 2024)
https://dbrs.morningstar.com/research/444619

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 ESG 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 the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-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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