DBRS Morningstar Confirms Plenary Health Care Partnerships Humber LP at A (low); Maintains Negative Trend

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and the ratings on the Series A and Series B Long-Term Senior Bonds (the Bonds) issued by Plenary Health Care Partnerships Humber LP (ProjectCo) at A (low). All trends remain 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). While service period performance has improved, the Negative trends have been maintained as DBRS Morningstar continues to monitor the progress of the discussions related to disputed deductions, variations, and deferred works. The Project is in its 57th month of the 30-year service phase after achieving substantial completion on May 11, 2015.

Since the time of the last rating report published on February 12, 2019, service period performance has improved and there has been no further warning or monitoring notices issued by the Hospital. As well, final fixes were completed at the end of 2019 to the two elevators, S3 and S6, that caused the elevator downtime in early 2018, resulting in the application of significant deductions taken by the Hospital. While the deductions were passed down to Johnson Controls Canada LP, the Service Provider, continuing discussions are being made to recover these deductions from PCL, the Construction Contractor.

The Project continues to make progress in achieving final completion. While a large portion of deferred works has been submitted for approval to the Hospital at the end of 2019, final completion is not expected to be achieved until the latter half of 2020 at the earliest. Ongoing construction-related works and variation payment matters have been referred to the Independent Certifier for determination under the dispute resolution procedures.

DBRS Morningstar notes that failure points have trended lower over the last six-month period with accumulated failure points below default thresholds and deductions related to the service phase have been fully passed down to the Service Provider without causing financial impact to ProjectCo. The debt service coverage ratio, per the compliance certificate for November 30, 2019, was at 1.28 times (x), slightly higher than the forecast of 1.25x, primarily attributable to higher than expected interest on cash balances. DBRS Morningstar will continue to closely monitor the service performance going forward. DBRS Morningstar could take negative rating action if service performance deteriorates with high levels of failure points or deductions, new disputes with the Hospital negatively affect the operating environment, or any other material adverse development. DBRS Morningstar could reinstate the Stable trend in 2020 if ProjectCo and the Service Provider are able to achieve a steady state of operations with a sustained period of low level of deductions and failure points, along with timely resolution of disputes with the Hospital.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

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

The principal methodology is Rating Public Private Partnerships, which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

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.

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

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at info@dbrsmorningstar.com.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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