DBRS Confirms Plenary Health Peel LP Series A Senior Bonds at A (low), Stable

DBRS Limited (DBRS) confirmed the rating of A (low) on the Series A Senior Bonds (the Bonds) issued by Plenary Health Peel LP (ProjectCo), the special-purpose entity (SPE) created to design, build, finance and maintain (DBFM) a new 350,000 square foot (sq. ft.) hospital facility in Brampton, Ontario (the Project), under a 32.3-year project agreement (PA) with William Osler Health System (Osler or the Hospital) and the Province of Ontario (the Province; rated AA (low) with a Stable trend by DBRS). The trend is Stable, supported by the completion of construction activities and a smooth transition to the service phase.

Construction work is complete and the project successfully achieved substantial completion on the revised target date of October 24, 2016, which had been delayed by eight weeks as a result of the shift in schedule necessitated by the fire on March 16, 2015. Construction work was completed by the design-build contractor, PCL (the DB Contractor), a subsidiary of PCL Construction Group Inc. Following substantial completion, the facility was occupied in accordance with the planned occupancy schedule, which included decanting activities from the old facility. Transition activities were completed without material issues and final completion was certified on June 6, 2017, after a delay of roughly six months as a result of outstanding minor deficiencies. DBRS notes that no financial penalties arose as a result of missing the revised target final completion date. All minor deficiencies have since been completed with the exception of several immaterial items, including repainting and curb resurfacing, which are expected to be finalized once approved by the Hospital. Outstanding operations phase variation work includes electrical and facility work, including door kit installation and alarm system, estimated at less than $175,000 in total. The variation work is not expected to be technically challenging and is scheduled to be completed by the end of the year.

The achievement of substantial completion on October 24, 2016, marked the beginning of the 30-year service phase, and entails routine maintenance of the facility, including plant services, help-desk services, grounds maintenance and security of systems infrastructure as well as lifecycle maintenance to return the facility to the Hospital in a state of good repair upon the expiry of the PA. Except for general management and insurance responsibilities, all of ProjectCo’s obligations related to the services phase have been subcontracted to Honeywell Limited (the Service Provider), which has considerable experience with public-private partnerships (PPPs) and lifecycle maintenance, for the term of the Project on a back-to-back basis. Service period performance has been smooth, with only two minor availability failures with only 280 failure points assessed, equating to less than $400 in total costs, a modest amount that is well below PA thresholds. The actual and projected financial metrics for the service phase remain consistent with the financial model and adequate for the rating. The debt service coverage ratio (DSCR) as per the Compliance Certificate as on September 30, 2017, has been reported at 1.28 times (x), above the estimate of 1.18x, partly benefiting from higher than expected interest income on cash balances. The relationship between ProjectCo, the Service Provider and the Hospital remains cooperative, with any issues encountered being resolved on a timely basis.

Service period performance-related issues leading to material deductions could result in negative rating action, whereas the Project has limited credit upside at the current rating of A (low), Stable trend.

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 initially 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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