DBRS Assigns Rating of “A” with a Stable Trend to Women’s College Partnership’s Senior Secured Bonds

DBRS Limited (DBRS) assigned a rating of “A” with a Stable trend to the $207.3 million Senior Secured Bonds (the Bonds) issued by Women’s College Partnership (ProjectCo). ProjectCo is a special-purpose entity created for the design, construction, financing, maintenance and rehabilitation of Women’s College Hospital (the Project) in Toronto under a Project Agreement with Women’s College Hospital (WCH or the Hospital) for a term of 30 years from scheduled interim completion. The Hospital is an ambulatory/outpatient facility focusing on women’s health issues and comprises a 40,295-square-metre (m2; 0.4 million square foot (sf)) ten-storey building and 18,561 m2 (0.2 million sf) of three-level below-grade parking. Supporting the rating are the low credit risk of the counterparties responsible for the availability-based payments to ProjectCo — namely, the Province of Ontario (rated AA (low) with a Stable trend by DBRS) and the Hospital; high resiliencies; relatively simple building and operations; and the lifecycle inspection and reserving mechanism. The credit profile is constrained by the high leverage carried by ProjectCo and complex contractual structure (although common in public-private partnerships with availability-based payments) and the service provider replacement risk.

The Project achieved interim completion on May 14, 2013, and substantial completion on September 24, 2015; final completion is targeted toward the end of 2017. At the time of substantial completion, all major construction activities were complete, with only punch-list items remaining in order to achieve final completion. As the Project is in its service phase, only a few items remain for final completion and the failure to achieve final completion will not directly give rise to a default under the Project Agreement, the rating of the Project is dependent only on the rating of the service phase.

The 30-year operational phase began on the achievement of interim completion on May 14, 2013. ProjectCo has subcontracted operating and maintenance (O&M) responsibilities to Black & McDonald Ltd. under a fixed-price, full-term service contract. Lifecycle risk is retained by ProjectCo. A Lifecycle Reserve Account is in place, and look-forward testing starts five years after the Trust Indenture is entered into (i.e., nine years from the start of the service phase) and continues every fourth year thereafter. The O&M budget of $3.5 million per year (in 2010 real dollars) and the lifecycle budget of $47.6 million over the life of the Project (in 2010 real dollars) are considered by the Lenders’ Technical Advisor (LTA) to be appropriate, with the former within the benchmark range and the latter slightly higher than the benchmark range after adjusting for project-specific factors. Operational performance during the four years since interim completion has generally been good with a relatively low level of failure points and deductions related to service performance. The LTA has reported that the relationship between WCH, ProjectCo and the Service Provider is good, and there are no ongoing disputes.

The Project features a minimum debt service coverage ratio of 1.44 times (x) with an equity lock-up of 1.15x, O&M resilience of 83.9% and lifecycle resilience of 76.5%, which are supportive of the “A” rating on the Bonds.

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 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.

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.