DBRS Morningstar Confirms Integrated Team Solutions SJHC Partnership Ratings at A (low) With Stable Trends

DBRS Limited (DBRS Morningstar) confirmed Integrated Team Solutions SJHC Partnership’s (ProjectCo) Issuer Rating and the rating of ProjectCo’s Series A Senior Bonds at A (low) with Stable trends. ProjectCo is the special-purpose entity created to design, build, finance, and maintain two new mental health facilities in London and St. Thomas, Ontario (the Project), under a 32-year project agreement (PA) with St. Joseph’s Health Care London (SJHC).

ProjectCo reported fewer water leaks in 2020–21 compared with the prior year and Honeywell continued to implement preventative measures such as increasing the frequency of visual checks and installing backsplash behind cabinets to prevent major issues. Several availability failures of certain elevators were reported at both sites, resulting in total deductions of approximately $30,000. According to ProjectCo, the issues were minor and mainly related to malfunctioning elevator doors, likely caused by debris built up during the winter season. It also took longer to restore the availabilities mainly because of constraints to access both parts and technicians on site at the same time. Honeywell has implemented increased cleaning of the elevator areas and is looking to increase the stocking of extra parts onsite to mitigate relevant risks in future. Monthly failure points related to plant and utilities management services incurred for the year ended February 28, 2022, were about 54% (monthly average) and 45% (three-month rolling average) below that of the warning and monitoring notice thresholds, respectively. Total failure points incurred remain well below the various event-of-default thresholds. Total deductions during the past year amounted to approximately $32,000, lower than the previous year, and were fully passed down to Honeywell.

Since the beginning of the Coronavirus Disease (COVID-19) pandemic to the date of this report, the Project has not experienced any material impact on operations. In March 2020, ProjectCo notified the Indenture Trustee and SJHC that it may seek relief under the PA related to the coronavirus pandemic. ProjectCo indicated that it has not withdrawn the notification because the pandemic remains ongoing.

The Project's energy consumption for the year ended January 31, 2022 (Energy Year 7), is expected to be lower than the target, resulting in energy gainshare this year. In accordance with the Service Contract, any energy gainshare or painshare adjustment will be passed down to Honeywell.

The Project’s debt service coverage ratio (DSCR) for the year ended February 28, 2022, was 1.19 times (x), which was lower than the projected DSCR of 1.21x mainly because of lower interest income. Operating and maintenance and lifecycle resiliencies remain in line with the financial-close financial model at 47% and 43%, respectively. For the next 12 months, the DSCR is expected to be 1.21x.

DBRS Morningstar could take a negative rating action if the Project’s operating performance deteriorates materially, leading to an accumulation of failure points that could potentially trigger various contractual thresholds. Because of the fixed-price service contract, there is limited upside on the Project’s financial metrics that would support a positive rating action.

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 Public-Private Partnerships (August 19, 2021; https://www.dbrsmorningstar.com/research/383244), 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.

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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