DBRS Morningstar Confirms Hamilton Health Sciences Corporation at AA (low), Stable Trend

DBRS Limited (DBRS Morningstar) confirmed the Senior Unsecured Debentures rating of Hamilton Health Sciences Corporation (HHSC or the Hospital) at AA (low) with a Stable trend. The rating is based on DBRS Morningstar’s view of HHSC’s importance to the Province of Ontario’s (Ontario or the Province; rated AA (low) with a Stable trend by DBRS Morningstar) healthcare system and strong operational and financial links to Ontario. The rating also reflects the absence of any material weaknesses in the Hospital’s governance, operating performance, leverage, and financial strength.

DBRS Morningstar assigns the same rating to debt issued by an important hospital as to its provincial government, 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 those hospitals that are fundamentally important to the provincial healthcare system. The Coronavirus Disease (COVID-19) pandemic has reinforced this view as hospitals remain critically important to the Province's coronavirus response and continue to receive additional financial support and resources.

For 2021-22 the management has indicated that the Hospital will likely post balanced results on a consolidated basis, assuming that one-time funding materializes as anticipated. HHSC recorded an operating surplus of $5.9 million during 2020–21. After including a designated transfer/gift of $2.6 million made to its charitable research arm, Hamilton Health Sciences Research Institute, the consolidated surplus was $3.2 million compared with a small deficit of $0.2 million in the prior year.

At March 31, 2021, HHSC had $336.7 million in total debt, including capital-lease obligations ($42.8 million), long-term debt ($254.8 million), and Bay Area Health Trust's (BAHT) guaranteed debt ($39.2 million). This equated to a debt-to-revenue ratio of 20.5%, modestly higher than 19.1% in F2020. Subsequent to the year ended March 31, 2021, HHSC completed the acquisition of the cogeneration assets and related financing from BAHT, which discharged the operating lease along with the guarantee. In line with DBRS Morningstar's earlier expectations, HHSC’s total debt burden, including capital-lease obligations and bank indebtedness, is likely to peak around $375.8 million, or roughly 22.3% of total revenues in 2021–22.

RATING DRIVERS
A change in Ontario’s ratings would lead to an equal change in the Hospital’s rating. While not anticipated, DBRS Morningstar may consider a lower rating for the Hospital than for the Province if HHSC experiences material deficiency or weakness in additional rating factors, such as a sustained deterioration in its annual operating performance, with no management response or government support.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

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

The principal methodology is Rating Canadian Public Hospitals (March 23, 2021; https://www.dbrsmorningstar.com/research/375734), which can be found on dbrsmorningstar.com under Methodologies & Criteria. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021; https://www.dbrsmorningstar.com/research/373262).

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.

DBRS Morningstar will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact 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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