DBRS Confirms Health Montréal Collective Limited Partnership/Collectif Santé Montréal S.E.C.

DBRS has today confirmed the BBB (high) rating on the $1,371 million Senior Secured Bonds (the Bonds) of Health Montréal Collective Limited Partnership/Collectif Santé Montréal S.E.C. (ProjectCo). The trend is Stable. ProjectCo is the special-purpose entity created to design, build, finance and maintain a new 772-bed healthcare facility (the Project) under a 38.8-year public-private partnership with the Centre Hospitalier de l’Université de Montréal (the Hospital) as evidenced by the Project Agreement (PA).

The Province-wide construction strike resulted in the loss of nine working days during the month of June 2013. After re-sequencing of activities to mitigate the impact and taking into account time savings previously built up, BTY Group (the Lenders’ Technical Advisor or LTA) estimates the strike caused a three-day delay to the critical path of the Project and a 15% delay to the progress of design and construction activities during the month of June. Prior to substantial completion, the occurrence of the strike is a Relief Event and a Compensation Event under the PA and ProjectCo has submitted a notice to the Hospital for the Relief Event with possible time and monetary compensation. Equivalent relief will be passed to the Design-Builder, to the extent received from the Hospital.

At the time of this report, 78% of the design activities have been completed, and as measured by funds disbursed construction activities were 30.3% complete. Although the strike impacted construction during June, progress is now essentially back on the critical path. While construction of blocks B1 and A1 is delayed, neither is on the critical path and it is anticipated that both will be completed so as not to jeopardize meeting substantial completion on the target date. To date, there have been 11 variations under the PA, all but one of which have been agreed to by ProjectCo and the Hospital and funding for which will be provided by way of lump sum payments. The remaining variation inquiry regarding operating theatres is still under negotiation between the parties.

Per the latest LTA report, 97 subcontracts have been issued for tender, of which 65 have been closed. This represents 61% of the overall number of subcontracts. In general, subcontractors have been performing as expected, and pricing has been competitive, with costs coming in as expected by the Construction Contractors. In one case, remedial work was required to replace some defective concrete in some columns of building D, although this work has since been completed and has been certified by the responsible structural engineer.

Upon completion of Phase 1 construction, the 33.9-year service phase will commence, entailing routine and lifecycle maintenance of the facility and electromechanical equipment, as well as management of energy consumption. Ancillary functions, such as help desk services, grounds maintenance, pest control and security, are also within the scope of the Project. With the exception of general management and certain insurance responsibilities, ProjectCo’s obligations related to the service phase will be passed down to Dalkia Health Services Montréal L.P. The financial projections for the service phase remain consistent with the original financial model and adequate for the rating.

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

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 to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodology is Rating Public-Private Partnerships (November 2012), which can be found on our website under Methodologies.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.