DBRS Morningstar Confirms Women’s College Partnership at “A” With Stable Trends

DBRS Limited (DBRS Morningstar) confirmed Women’s College Partnership’s (ProjectCo) Issuer Rating and the rating on the $207.3 million Senior Secured Bonds (the Bonds) at “A” with Stable trends. ProjectCo is the special-purpose entity created for the design, construction, financing, maintenance, and rehabilitation of Women’s College Hospital (the Project) in Toronto under a Project Agreement (PA) with Women’s College Hospital (the Hospital) for a term of 30 years from scheduled interim completion.

The Project achieved interim completion on May 14, 2013, substantial completion on September 24, 2015, and final completion on April 4, 2019. The 30-year operating phase began on the achievement of interim completion. ProjectCo has subcontracted its operating and maintenance (O&M) responsibilities under the PA to Black & McDonald Ltd. (BML or the Service Provider) under a fixed-price, full-term service contract.

The Project has been in operation for more than 10 years, and its operating and financial performance has been relatively stable. The number of failure points and deductions (net of elevator-related deductions that were held in abeyance from July and August 2021) incurred in 2022 were about 23% and 58% lower than in 2021. In addition, the failure points were well below the contractual thresholds.

The Service Provider suffered a cyberattack (related to phishing emails) in February 2023. As a result, the Service Provider had to shut down its network to prevent further breach of information. The network was subsequently fully restored in a few weeks. ProjectCo confirmed that there was no significant loss of data, and the Project’s operation was not adversely affected. Thus, there were no material deductions or failure points incurred.

The Project maintained its stable performance in Q1 2023 with no deductions incurred during the period. The elevator subcontractor conducted a five-year preventative elevator maintenance program that began in February 2023 and completed in March 2023. The Project deferred some of the planned lifecycle activities in 2022 to 2023 because of better-than-expected conditions. These activities were related to heat exchangers, parking doors, and floors. The deferred lifecycle amount was approximately $480,000; this has been recognized as a provision, and it is expected to be carried over on a quarterly basis until the work is complete. ProjectCo confirmed that the deferred lifecycle activities will be performed and completed in 2023. ProjectCo also indicated that the planned lifecycle activities in 2023–26 amount to about $1.5 million to $2.0 million annually.

ProjectCo confirmed that discussion with the Hospital remains ongoing with respect to recalculating the annual energy target, which is permitted under the PA every five years. ProjectCo also indicated that the Project’s actual annual energy consumption during the five-year period (base energy year 2018) was below the annual energy target. Thus, BML had been receiving an energy gainshare amount from the Hospital.

For the year ended September 30, 2022, the debt service coverage ratio (DSCR) of 1.40 times (x) was below the projected DSCR of 1.44x. The lower-than-expected DSCR was mainly related to the provision of about $480,000 (as mentioned earlier in the report) that was incorporated in the DSCR calculation. Excluding the provision, the DSCR for the year ended September 30, 2022, would have been about 1.43x. DBRS Morningstar notes that the DSCR for the year ended March 31, 2023, was 1.47x.

The Project's minimum DSCR of 1.44x, coupled with O&M resilience of 83.9% and lifecycle resilience of 76.5%, remains supportive of the “A” ratings. While a positive rating action is unlikely, negative rating pressure could result if the Project incurs significant failure points as a result of a material deterioration in ProjectCo’s operating performance. Furthermore, a persistently higher-than-expected lifecycle cost may result in a material deterioration of the financial metrics, which may lead to a negative rating action.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
General Considerations
There were no Environmental/Social/Governance 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 (May 17, 2022) at https://www.dbrsmorningstar.com/research/396929/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings.

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

DBRS Morningstar applied the following principal methodology: Global Methodology for Rating Public-Private Partnerships (https://www.dbrsmorningstar.com/research/402155; August 30, 2022).

The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

A description of how DBRS Morningstar analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/397223/interplay-of-global-corporate-finance-rating-methodologies-when-analyzing-corporate-finance-transactions.

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 rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the rating process for this rating action.

DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is a solicited credit rating.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.

Information regarding DBRS Morningstar ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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