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

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating and Long Term Senior Bonds rating of Plenary Health Hamilton LP (ProjectCo) at “A” with Stable trends. ProjectCo is the special-purpose entity created to design, build, finance, and maintain a 305-bed mental health facility (the Project) under a 33-year public-private partnership with St. Joseph’s Healthcare Hamilton.

The Project successfully achieved substantial completion on the target date of December 6, 2013, and achieved final completion on December 22, 2017. The Project is now in its eighth year of the 30-year service phase, during which Honeywell Limited (Honeywell or the Service Provider) performs all facilities management (FM) services as well as lifecycle services on behalf of ProjectCo in order to return the facility to a state of good repair upon expiry of the Project Agreement. The facility operations continue to be stable, with failure points and deductions being well below the threshold levels. For the last 12 months (LTM) from June 2019 to May 2020, the overall reported deductions were $8,546, or 0.03% of the approximately $30 million in revenue reported in the same period. The failure points are also well below the threshold limits. All deductions and failure points have been passed to Honeywell. For the LTM ended September 30, 2020, the overall reported deductions were $8,484, which is in line with historical average. The number of failure points has subsided since the start of the service phase, indicating smoother operations over time.

For the year ended March 31, 2020, overall actual energy consumption was 4% higher than target consumption levels, with electricity and natural gas consumption being 16% lower and 29% higher than the discrete target levels, respectively. This led to an annual gainshare adjustment of $95,303 related to electricity consumption and an annual painshare adjustment of $84,199 related to gas consumption, aggregating to a net gainshare adjustment of $11,103, which is fully passed down to Honeywell. While natural gas consumption continued to be higher than target this year, it was slightly improved compared with last year. A six-month debt service reserve and the performance security provided by the Service Provider, which includes a letter of credit in an amount equal to one-half of the annual FM costs plus average lifecycle (indexed) costs, afford a modest cushion against unforeseen events during the service phase.

As of the last compliance certificate for the LTM ended November 30, 2020, the debt service coverage ratio (DSCR) was 1.23 times (x), which is slightly higher than the projected DSCR of 1.20x, primarily as a result of savings in SPV costs. DBRS Morningstar also notes that, per the compliance certificate for the LTM ended May 31, 2020, the actual DSCR was 1.23x, which is slightly higher than the projected DSCR of 1.21x because of higher interest income. Material deductions on account of performance-related failures during the service phase could lead to a negative rating action. The potential for credit upside remains limited at the current ratings, given the Project’s resiliency levels.

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@dbrs.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.

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