DBRS Confirms Plenary Health Peel LP Series A Senior Bonds at A (low), Stable

DBRS Limited (DBRS) has today confirmed the rating of A (low) assigned to the Series A Senior Bonds (the Bonds) issued by Plenary Health Peel LP (ProjectCo), the special-purpose entity created to design, build, finance and maintain a new 350,000 square foot hospital facility in Brampton, Ontario (the Project), under a 32.3-year project agreement (PA) with William Osler Health System (Osler or the Hospital) and the Province of Ontario (rated AA (low) by DBRS). While the trend is Stable, DBRS notes that a fire on the site has given rise to a Delay Event and Relief Event and is likely to affect timely completion of the Project.

ProjectCo has passed down the construction tasks and substantially all other risks during the construction phase to PCL Constructors Canada Inc. (PCL) under a fixed-price date-certain contract. Construction of the new hospital began in May 2014, with delivery of the facilities expected by August 31, 2016. On March 16, 2015, there was a large fire on the site that caused substantial damage, although the full extent of the delay to the critical path is yet to be confirmed. The fire has caused damage to the formwork system, the structure, mechanical and electrical rough-ins, cranes as well as miscellaneous equipment and small tools. No workers were injured as a result of this incident and there were no reported issues with the surrounding community. Discussions with the Authority and Infrastructure Ontario have been ongoing, and PCL and ProjectCo have suggested a revised target substantial completion date of October 24, 2016, representing a delay of approximately eight weeks.

DBRS notes that as of June 30, 2015, the damage caused as a result of the fire has been substantially rectified and no remnants of heat and fire damage are apparent. DBRS will continue to monitor construction progress but notes that ProjectCo will receive an extension of the target substantial completion date in the amount of the delay and insurance will be available to cover the remediation work as well as any liquidated damages payable as a result of the late substantial completion date.

The 30-year service phase will commence upon substantial completion and entails routine maintenance of the facility including plant services, help desk services, grounds maintenance and security of systems infrastructure as well as lifecycle maintenance in order to return the facility to the Hospital in a state of good repair upon the expiry of the PA. Except for general management and insurance responsibilities, all of ProjectCo’s obligations related to the services phase have been subcontracted for the term of the Project on a back-to-back basis to Honeywell Limited (the Service Provider), which has considerable experience with clinical public-private partnerships (PPPs) and lifecycle maintenance. The output requirements outlined in the PA are clearly specified and deemed reasonable. The Technical Advisor, BTY Group, highlights that failure-point thresholds are more stringent than observed on similar PPP projects, but remain manageable for a competent service provider such as Honeywell Limited.

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.

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

The applicable methodology is Rating Public-Private Partnerships (March 2015), which can be found on our website under Methodologies.

The full report providing additional analytical detail is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.

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