DBRS Confirms Plenary Health Hamilton LP at “A” with a Stable Trend

DBRS Limited (DBRS) confirmed the rating of “A” with a Stable trend on the $255 million Long Term Senior Bonds (the Long Term Bonds) of Plenary Health Hamilton LP (ProjectCo). ProjectCo is the special-purpose entity created to design, build, finance and maintain a new 305-bed mental health facility (the Project) under a 33-year public-private partnership with St. Joseph’s Healthcare Hamilton.

The Project successfully achieved substantial completion on the target date of December 6, 2013, and achieved final completion on December 22, 2017. Final completion was delayed as a result of a deferral in software updates and required monitoring of the integrated software system, although no financial or contractual penalties were incurred as a result.

The Project is now in its fourth year of the 30-year service phase, during which Honeywell Limited (the Service Provider) performs all facilities management (FM) services as well as lifecycle services on behalf of ProjectCo in order to return the facility to a state of good repair upon expiry of the Project Agreement. The facility operations continue to be stable, with failure points and deductions being well below the threshold levels. For the year ending March 31, 2017, the overall actual energy consumption was 1% lower than the target consumption levels, indicating a significant improvement from previous years. However, natural gas consumption levels continue to be above target consumption levels, and steps have been taken to improve its efficiency further. A six-month debt service reserve and the performance security provided by the Service Provider, which includes a letter of credit in an amount equal to one-half of the annual FM plus average lifecycle (indexed), afford a modest cushion against unforeseen events during the service phase.

The actual and projected financial metrics for the service phase remain consistent with the financial model and adequate for the rating. As of the last compliance certificate for the 12-month period ending November 30, 2017, the debt service coverage ratio (DSCR) was 1.22 times (x), and the projected DSCR continues to be 1.22x. While neither currently an issue nor expected by DBRS, material deductions on account of performance-related failures during the service phase could lead to a negative rating action. The potential for credit upside remains limited at the current rating given the Project’s low resiliency levels.

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

The principal methodology is Rating Public-Private Partnerships, which can be found on dbrs.com under Methodologies.

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 under Related Documents or by contacting us at info@dbrs.com.

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

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