DBRS Confirms McGill University Health Centre/Centre universitaire de santé McGill at A (high), Stable Trend

DBRS Limited (DBRS) confirmed the Series A Senior Unsecured Debentures (the Debentures) of McGill University Health Centre/Centre Universitaire de Santé McGill (MUHC or the Hospital) at A (high) with a Stable trend. The rating is in line with that of the Province of Québec (the Province of Québec, rated A (high) with a Stable trend) because of the high degree of implicit support that arises from the essentiality of MUHC to the Province’s health care system.

MUHC is among the largest hospital networks in Canada, providing highly specialized care to nearly 1.7 million Québec residents. It is strategically important for the delivery of health care in the province and its constituent hospitals are major teaching and research institutions. A disruption of health services at MUHC would be detrimental to health care delivery in the Province.

Operating results have been weak in recent years, though annual losses have fallen since peaking in 2012–13. MUHC continues to manage significant volume pressures, as well as the transitional issues associated with the new Glen site. Nevertheless, MUHC was able to halve the size of its deficit in 2016–17 and has presented a balanced budgeted for 2017–18 following the adoption of a number of measures to improve operational efficiency and financial results. The medium-term outlook remains challenging for the Hospital in light of ongoing funding constraint.

The independent members of MUHC’s board of directors resigned in early July following a public and acrimonious breakdown in the board’s relationship with the Minister of Health and Social Services (the Minister). DBRS understands that the hospital’s relationship with the Ministry remains functional at the operational level and that the Province has initiated search process for a new board. While media reports suggest governance is a concern at MUHC, DBRS notes that much of the power and authority rests with the Minister in the Québec health care system. The Minister has extensive powers and authorities to direct and intervene in the affairs of Québec’s hospitals. These powers are routinely exercised in the form of directives and major operational, financial and capital decisions require provincial approval. In addition, the Minister has the ultimate authority to replace ineffective leadership with a trustee, a power the Minister never chose to exercise. Ultimately, DBRS views the extent of the powers vested in the Minister as further evidence of the strong linkage between the Province’s and MUHC’s credit profiles.

RATING DRIVERS
DBRS expects the ratings to remain stable. The essentiality of MUHC to the provincial health care system suggests the greatest likelihood of implicit support and the strongest linkage to the credit profile of the Province. As such, a positive or negative rating action is most likely to be tied to changes in the credit rating of the Province. While remote, a breakdown in a hospital’s governance that severely affected a hospital’s operations and finances could result in a downgrade.

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 Canadian Public Hospitals, which can be found on dbrs.com under Methodologies.

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.

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