DBRS Morningstar Confirms Accès Recherche Montréal L.P. at “A” with a Stable Trend

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Senior Secured Debt rating of Accès Recherche Montréal L.P. (ProjectCo) at “A” with Stable trends. ProjectCo is the special-purpose vehicle (SPV) created by Axium Recherche L.P. and Meridiam Infrastructure (SCA) SICAR (Meridiam) to design, build, finance, and maintain a new 68,431-square-metre research centre (the Project) under a 33.3-year public-private partnership (PPP) with Centre hospitalier de l’Université de Montréal (CHUM or the Hospital), one of the Province of Québec’s (Québec or the Province; rated AA (low) with a Stable trend by DBRS Morningstar) largest health-care institutions.

The Project has been in operations since 2013 and it continues to perform well with minimal incurrence of failure points that remain well below the contractual thresholds. The energy consumption in Energy Year 3 was around 8% below its energy target. Overall, the energy consumption has decreased year over year.

DBRS Morningstar understands that the installation of the reverse osmosis water treatment system did not complete by the end of 2019 as planned due to the unexpected shortage of parts and the unprecedented situation related to the Coronavirus Disease (COVID-19) pandemic, which began in March 2020 and prohibited external contractors on site. According to ProjectCo, the installation of the reverse osmosis system is now complete and the degasser to pre-treat the steam is expected to be completed by October 2020. Once the system is fully installed, it is expected to rectify the recurring pre-corrosion-of-pipes issue that caused water leakage in the mechanical room and animal lab in 2018 and 2019, respectively.

ProjectCo indicated that Honeywell Limited (Honeywell; a subsidiary of Honeywell International Inc. (rated “A” with a Stable trend by DBRS Morningstar)) and the design-build joint venture (DBJV) are still working toward a permanent solution to resolve the vibration issue. Overall, DBRS Morningstar believes these remaining construction-related issues do not pose a considerable risk to the operating performance of the Project, as both issues have not resulted in any incurrence of material failure points or deductions.

According to ProjectCo, the coronavirus pandemic has not had a material impact on the Project. Since the beginning of the pandemic, the facility occupation level has reduced as many staff transitioned to working remotely. One notable change was the requirement to set up a coronavirus testing clinic for medical staff. This resulted in hiring six additional security guards and the associated costs have been confirmed as a Variation and will be paid by CHUM. The Lenders’ Technical Advisor noted in its most recent audit that the outdoor air level has increased in the facility in response to the coronavirus pandemic. However, ProjectCo and Honeywell believe the overall energy consumption should not be materially affected by the pandemic because of the reduced occupancy in the facility.

ProjectCo achieved annual debt service coverage ratios (DSCRs) of 1.38 times (x) and 1.39x in June 2020 and December 31, 2019, respectively. The higher-than-expected DSCRs were the result of a lower SPV cost than what was projected in the financial model. Furthermore, the Project’s debt-to-cash flow available for debt servicing (CFADS) in 2019 was about 8.1x. In accordance with the financial model at financial close, DBRS Morningstar expects the Project to continue to generate a minimum DSCR of 1.37x in the operating phase and strong projected operating and maintenance and lifecycle resiliencies of 127% and 115%, respectively.

DBRS Morningstar could take a negative rating action if the Project experiences significant operational challenges that result in a material accumulation of failure points or deductions. An upgrade to the ratings is unlikely in the near term as the Project’s operating and financial metrics are commensurate with the rating category.

ESG CONSIDERATIONS
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 (August 19, 2020), 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.

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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