DBRS Morningstar Confirms Ratings on Plenary Health Care Partnerships Humber LP at A (low) with Stable Trends

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and the ratings on the Series A and Series B Long-Term Senior Bonds of Plenary Health Care Partnerships Humber LP (ProjectCo) at A (low) with Stable trends. ProjectCo is a special-purpose vehicle (SPV) 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 94th month of the 30-year service phase after achieving substantial completion on May 11, 2015.

From February 24, 2021, to February 26, 2021, there were multiple power interruptions to the facility, which led to HRH notifying ProjectCo, by letter dated July 5, 2021, that it formally disputes the failure points calculation of the code gray (power interruption) incidents. On February 17, 2022, the Hospital furnished a letter to ProjectCo alleging that the six-month failure point threshold for the Plant Services and Management Category was breached as a result of the February 2021 power interruptions, which, pursuant to the PA, allows the Hospital to force replacement of a poorly performing Service Provider. DBRS Morningstar notes that the letter indicates that it does not believe that Service Provider performance is the cause of ongoing facility issues. Disputes have been ongoing with respect to the amount of $715,752.86 withheld by HRH because of disagreements over the February 2021 performance monitoring program reporting.

ProjectCo has reported the day-to-day relationship with the Hospital is stable, with no performance issues as of today, and the two entities continue to work together to resolve this matter. General operations were smooth during 2022, with no material deductions or failure points. DBRS Morningstar notes that deductions related to the service phase have been fully passed down to the Service Provider without causing any financial impact to ProjectCo. DBRS Morningstar continues to monitor the progress of discussions related to the pending disputes.

The debt service coverage ratio (DSCR) per the compliance certificate for November 30, 2022, was 1.21 times (x), lower than the forecast DSCR of 1.25x but higher than the minimum DSCR of 1.15x, mainly the result of an accounting adjustment. DBRS Morningstar could take a negative rating action if the dispute resolution procedure (as defined in the PA), which HRH and ProjectCo are following, becomes prolonged, service performance deteriorates with high levels of failure points or deductions, new disputes that negatively affect the operating environment arise with HRH, or if any other material adverse development occurs. A positive rating action is not expected in the short term.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no environmental, social, and governance factors that had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings (May 17, 2022).

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

The principal methodology applicable to the rating is Global Methodology for Rating Public-Private Partnerships (August 30, 2022; https://www.dbrsmorningstar.com/research/402155), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

The rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

A description of how DBRS Morningstar analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/397223/interplay-of-global-corporate-finance-rating-methodologies-when-analyzing-corporate-finance-transactions.

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@dbrsmorningstar.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.

DBRS Morningstar will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrsmorningstar.com.

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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