DBRS Discontinues Rating on EllisDon Infrastructure JBH Inc.’s Series A Short Term Senior Bonds and Issues Commentary

DBRS Limited (DBRS) discontinued the rating on the Series A Short Term Senior Bonds issued by EllisDon Infrastructure JBH Inc. (ProjectCo), the special-purpose entity created to design, build and finance the construction of a new tower and refurbishment of portions of the existing hospital in Burlington, Ontario (the Project), under a 45-month Project Agreement (PA) with the Joseph Brant Hospital (JBH or the Hospital). The discontinuation reflects the full repayment of the bonds on July 25, 2017, after the Project achieved Tower Interim Completion on July 17, 2017. The A (low) rating and Stable trend assigned to the $185.8 million Series B Short Term Senior Bonds (Series B Bonds) remains unchanged.

The rating is supported by the sound credit quality of the construction contractor (EllisDon Design Build Inc.) and its parent company (EllisDon Inc.), a comprehensive security package and the relatively straightforward nature of the construction task. As of June 2017, the Project was in the 30th month of the 43-month construction schedule. Construction had progressed 80% and was 1.4% behind the scheduled draw curve, reducing from a peak of 10% behind the scheduled draw curve nine months ago.

The Project has faced some delays, which the LTA indicated have been recovered or addressed through variations with the Hospital. In March 2017, the Project encountered water damage on the first four levels on the new seven-storey tower construction for which corrective measures were taken, without delaying the Tower Interim Completion. The delay notices on account of the unforeseen subgrade conditions in the pharmacy and other areas starting in August 2016 are being addressed through a variation, which reduces the scheduled time for patient move-in, providing ProjectCo with more time to complete the renovation activities. The renovations to the pharmacy, maternity/child and food-services area have taken longer than expected, although they are now complete. The Lender’s Technical Advisor has opined that substantial completion can be achieved by the scheduled date.

DBRS is encouraged by the work done recently to nearly regain the draw curve and will continue to closely monitor progress. However, downward pressure on the rating is still possible if any fresh delay events emerge without adequate mitigation measures or relief.

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

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