DBRS Confirms Women’s College Partnership’s Senior Secured Bonds at “A” with a Stable Trend

DBRS Limited (DBRS) confirmed its rating of “A” with a Stable trend on the $207.3 million Senior Secured Bonds (the Bonds) issued by Women’s College Partnership (ProjectCo). ProjectCo is the 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 (PA) with Women’s College Hospital (WCH or the Hospital) for a term of 30 years from scheduled interim completion.

The Project achieved interim completion on May 14, 2013, and substantial completion on September 24, 2015. Final completion has been delayed and is currently targeted toward the end of 2018. As only a few items remain for final completion and the failure to achieve final completion is not an event of default under the PA, the Project’s rating is dependent only on the rating of the service phase.

The 30-year operating phase began on the achievement of interim completion. ProjectCo has subcontracted its operating and maintenance (O&M) responsibilities under the PA to Black & McDonald Ltd. (the Service Provider) under a fixed-price, full-term service contract. Lifecycle risk is retained by ProjectCo. Operational performance since interim completion has generally been good with a relatively low level of failure points and deductions related to service performance. During 2017, failure points totalled 1,148 and deductions amounted to approximately $109,100. During H1 2018, failure points totalled 1,128, largely as a result of elevator availability issues, while deductions amounted to approximately $145,000. DBRS notes that the levels are significantly lower than the PA’s monitoring threshold. The Service Provider has taken remedial measures, including engaging with the elevator service technicians to optimize the system. The deductions incurred have been passed on to the Service Provider and there has been no impact on payments to ProjectCo or Bondholders.

Energy pain-share/gain-share assessment results are expected in Q4 2018 and there has been no adjustment in monthly service payments to ProjectCo because of energy usage to date. ProjectCo indicated that the relationship among WCH, ProjectCo and the Service Provider is good without any 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 support the “A” rating on the Bonds. While positive rating action is unlikely, negative rating pressure could result from material deterioration in ProjectCo’s operating and financial performance.

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.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at info@dbrs.com.

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