DBRS Morningstar Confirms University Health Network at AA (low), Stable Trend

DBRS Limited (DBRS Morningstar) confirmed the Secured Bonds rating of University Health Network (UHN or the Hospital) at AA (low) with a Stable trend. The rating reflects UHN'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 any material weakness in the Hospital's governance, operating performance, leverage, and financial strength. As the largest hospital network in Ontario and Canada, UHN receives a high level of public funding and is subject to considerable government oversight.

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. DBRS Morningstar believes that the greatest likelihood of implicit support arises from the importance of healthcare to provincial governments, high levels of government funding, and significant control and oversight exercised by provincial governments.

UHN continued to record a positive operating surplus in 2021–22, with a surplus of $8.8 million, albeit down from $38.1 million last year. The Hospital remains committed to targeting an operating surplus, consistent with previous years.

UHN's debt burden rose in 2021–22, after the establishment of a $250 million unsecured loan agreement with the Ontario Financing Authority (OFA) to fund the Hospital’s Synapse project related to the implementation of its new Health Information System (HIS) and supporting projects. The new HIS was launched on June 4, 2022, and remains one of the Hospital's important strategic priorities. At March 31, 2022, total debt increased to $198.5 million, compared with $141.1 million in the previous year. UHN does not anticipate any new borrowing in the near term, though the loan facility will be gradually drawn down, thereby increasing total debt.

RATING DRIVERS
Any change to the Province's rating would trigger an equal change to the rating of UHN's Secured Bonds. While unlikely, UHN's rating could fall below that of the Province should the Hospital exhibit material weakness in operations, management/governance, operating results, leverage, or financial strength.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance (ESG) factors that had a significant or relevant effect on the credit analysis.

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/396929.

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

The principal methodology is Rating Canadian Public Hospitals (March 22, 2022; https://www.dbrsmorningstar.com/research/393975), 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 (May 17, 2022; https://www.dbrsmorningstar.com/research/396929).

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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