DBRS Morningstar Assigns Provisional Rating of AA (low), Stable Trend, to Windsor Regional Hospital

DBRS Limited (DBRS Morningstar) assigned a provisional rating of AA (low) with a Stable trend to Windsor Regional Hospital’s (WRH or the Hospital) proposed Series A Senior Unsecured Debentures (the Debentures). The rating reflects WRH's strong operational and financial links to the Province of Ontario (Ontario or the Province; rated AA (low) with a Stable trend by DBRS Morningstar) and the absence of material weaknesses in the Hospital’s governance, operating outlook, leverage, and financial strength.

DBRS Morningstar assigns the same rating to important hospitals as to their provincial governments, provided that there are no material deficiencies or concerns. This practice reflects DBRS Morningstar’s view that there is the greatest likelihood of support and thus the strongest linkage to the provincial credit profile for hospitals that are fundamentally important to the provincial healthcare system.

WRH is a large community hospital in Ontario's Windsor-Essex region. With its two major hospital facilities, WRH is the sole provider of advanced acute care in the region, serving a population of about 400,000 Ontario residents. The Hospital's advanced service offerings include complex trauma, renal dialysis, cardiac care, stroke and neurosurgery, intensive care, paediatric services, regional cancer services, and neonatal intensive care. The Hospital had more than 30,000 inpatients and 100,000 emergency room visits in 2019–20. Any disruption of services at the Hospital would be detrimental to healthcare delivery in Southwestern Ontario, thereby demonstrating WRH's importance to the provincial healthcare system.

The Hospital has addressed significant financial pressures faced during the 2014–19 period following the program realignment of all acute-care services in Windsor in 2013 and changes to Ontario's hospital funding model. These factors led to a deterioration in financial results and limited capital expenditures. With various efforts, WRH has addressed budget imbalances and reported a modest operating surplus in 2019–20. The budget outlook for 2020–21 suggests that the operating result will likely be balanced.

The Hospital plans to issue $200.0 million in Debentures to fund its share of a joint Health Information System as well as for capital equipment replacement and general corporate purposes. DBRS Morningstar projects that the Hospital’s total debt will exceed $250 million at March 31, 2021. Similarly, interest costs will rise to about $7.5 million on a full-year basis, equivalent to 1.5% of revenue. The Hospital signalled that it may establish a voluntary internal debt retirement fund to repay the Debentures.

RATING DRIVERS
DBRS Morningstar will likely tie any positive or negative rating action to changes in Ontario’s Issuer Rating and Long-Term Debt rating. A positive rating action would require an upgrade of the Province’s ratings. While a downgrade of Ontario’s ratings would lead to an equal change in the Hospital’s rating, significant changes in operations, management/governance, operating results, leverage, or financial strength could also negatively affect WRH's rating.

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 Canadian Public Hospitals (April 20, 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.

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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