DBRS Morningstar Confirms Plenary Health Bridgepoint LP at “A” with a Stable Trend

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Senior Amortizing Bonds (Series A) rating of Plenary Health Bridgepoint LP (ProjectCo) at “A.” All trends are Stable.

ProjectCo is the special-purpose vehicle (SPV) created to design, build, finance, and maintain a new 472-bed hospital (the Project) in Toronto and refurbish the adjacent historic Don Jail for administrative purposes under a 33.6-year Project Agreement (PA) with Bridgepoint Hospital (BH or the Hospital), one of the Province of Ontario’s (Ontario or the Province; rated AA (low) with a Stable trend by DBRS Morningstar) largest complex care institutions. ProjectCo’s responsibilities during the service phase have been largely passed down to Johnson Controls Canada LP (JCLP or the Service Provider) under an indexed fixed-price contract.

The Project has been in operation for more than seven years, and its operating and financial performance have been relatively stable. For the 12 months ended September 2020, the total number of failure points and associated deductions incurred by ProjectCo increased compared with the same period in 2019. DBRS Morningstar notes that the increase in failure points was mainly attributed to the increase in elevator downtime (i.e., the increase in response time for both unplanned maintenance and elevator entrapments) in October 2019 and January 2020. As a result, JCLP and the elevator subcontractor developed a list of actionable items to improve the process and response time earlier this year. Since then, DBRS Morningstar has noticed a material decrease in deductions and failure points. Despite the increase in the number of failure points, the total remains well below the Facilities Management Contract's (FM Contract) warning notice and monitoring notice thresholds. Moreover, there was no financial impact on the Project because the deductions were fully passed down to JCLP.

In response to the Coronavirus Disease (COVID-19) pandemic, JCLP has implemented various health and safety measures and protocols that are in line with the government's public health guidelines. At this time, the Project has not been materially affected by the pandemic as all the operations and maintenance (O&M) activities have continued uninterruptedly. The mandated temporary closures of multiple retail spaces (non-essential workplaces) in the facility in March 2020 through June 2020 reduced ProjectCo’s rental income. ProjectCo issued a Notice of Excusing Cause to the Hospital at the end of March 2020 seeking relief (from any performance failures and failure points associated with retail space and retail food) and compensation (forgone rental income) associated with the temporary measures that it implemented in response to the pandemic. DBRS Morningstar understands that, although the Hospital has yet to approve the relief and compensation, the forgone rental income represents less than 1% of the monthly service payment which is immaterial. Moreover, ProjectCo did not incur any deductions or failure points associated with retail space and retail food.

For the last 12 months ended August 2020, ProjectCo’s senior debt service coverage ratio (DSCR) was 1.20 times (x). The lower than expected senior DSCR was a result of the lower than expected interest income and retail revenue, and higher than expected insurance cost. ProjectCo is projecting a senior DSCR of about 1.19x for the year ending August 2021. Although the projected senior DSCR is slightly below what was projected at financial close, ProjectCo does not believe the senior DSCR will stay below 1.20x on a sustained basis. In DBRS Morningstar's view, the break-even ratios carry more weight in the Project's financial risk assessment. Therefore, ProjectCo’s O&M and lifecycle resiliencies of 78% and 87%, respectively, are considered strong for the ratings and provide it with more capacity to absorb any potential O&M and lifecycle cost increases.

DBRS Morningstar could take negative rating action if ProjectCo experiences material operational challenges resulting in a material accumulation of failure points on a sustained basis. DBRS Morningstar believes a positive rating action is unlikely given the fixed revenue stream from the Hospital and the fixed-priced FM Contract with JCLP.

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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