DBRS Confirms Integrated Team Solutions SJHC Partnership Series A Senior Bonds at A (low), Stable Trend

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

The project successfully achieved Early Occupancy completion at the St. Thomas site on April 25, 2013, and substantial completion at the London site on October 28, 2014, as scheduled. Patients have been transferred to the facility and the hospitals are operating. The independent certifier has confirmed that all minor deficiencies have been rectified and that final completion was achieved on December 12, 2014. There was a small portion of landscaping work that was completed in spring 2015 and a request for $45,520 for remaining works was invoiced in June 2015. The St. Thomas facility and the London facility achieved LEED Gold certification in May 2014 and in July 2015, respectively.

The completion of the St. Thomas facility marked the beginning of the 30-year service phase. Except for general management, which is retained by ProjectCo, all risks and responsibilities pertaining to core facilities management (FM) and lifecycle maintenance have been passed down to Honeywell Limited (Honeywell or the Service Provider) for the life of the project. Honeywell has been the Service Provider for approximately 25 months, and thus far only minimal deductions have been incurred, caused by minor construction deficiencies or availability failures. DBRS notes that the service obligations are standard, but exclude certain soft FM services generally passed down by the Province to the private sector, such as cleaning and security, resulting in a smaller operating budget.

The financial projections for the service phase remain consistent with the original financial model and are adequate for the rating. Typical of public-private partnerships (PPPs), leverage is high, with debt-to-cash flow available for debt servicing projected at 11.0 times (x) in the first year of normalized operation and a standard debt service coverage ratio (DSCR) of 1.21x foreseen over the project’s term. Break-even results, although tight, are within the benchmark range and are balanced by the solid profile of the Service Provider, the straightforward nature of service responsibilities and the lifecycle review mechanism embedded in the contractual structure.

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, which can be found on our website under Methodologies.

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

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