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 of Integrated Team Solutions SJHC Partnership (ProjectCo) at A (low) with a Stable trend. ProjectCo is the special-purpose entity created to design, build, finance and maintain two new mental health facilities in London and St. Thomas, Ontario (the Project), under the 32-year project agreement with St. Joseph’s Health Care London.

The Project successfully achieved substantial completion on the target date of October 28, 2014, and the final completion was achieved on December 12, 2014. The 30-year service phase began in 2013 with the completion of the St. Thomas facility. The St. Thomas facility is in its fourth year of operation, while the London facility is in its third year of operation. 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 49 months, and thus far only minimal deductions have been incurred, caused by availability and service failures. DBRS notes that the service obligations are standard, but they 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.

To date, financial results are commensurate with original projections. Typical of public-private partnerships, leverage is high, with debt-to-cash flow available for debt servicing of 11 times (x) in the first year of operation, which gradually steps down over the life of the project, and a debt service coverage ratio of 1.21x foreseen over the remaining project’s term. The project has an FM break-even of 47% and a lifecycle break-even of 43%. These 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 principal methodology is Rating Public-Private Partnerships, which can be found on www.dbrs.com 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.