Morningstar DBRS Confirms Women's College Partnership at "A," With Stable Trends

DBRS Limited (Morningstar DBRS) confirmed Women's College Partnership's (ProjectCo) Issuer Rating and the credit rating on the $207.3 million Senior Secured Bonds at "A" with Stable trends. 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 (the Hospital) for a term of 30 years from scheduled interim completion.

KEY CREDIT RATING CONSIDERATIONS
The Project achieved interim completion on May 14, 2013; substantial completion on September 24, 2015; and final completion on April 4, 2019. 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. (BML or the Service Provider) under a fixed-price, full-term service contract. However, the lifecycle risk is retained by ProjectCo.

The credit rating confirmation stems from the Project's stable operating and financial performance with minimal incurrence of failure points and deductions in 2024 and the first four months of 2025. The Project's operating performance in 2024 remained relatively stable compared with 2023 despite an uptick in failures points. The primary reason for the increase in failure points is a result of an elevator malfunction in October 2024 that was caused by external voltage spike that damaged some of the components of the elevator. However, the elevator subcontractor was able to replace the affected components and the elevator resumed operations within two days. If Morningstar DBRS were to exclude this elevator malfunction incident, the total accumulated failure points in 2024 would have been similar with the 2023 level.

A second joint technical review (JTR) of the Project was performed by Jones Lang Lasalle Incorporated (JLL) in January 2025 (the first JTR was published in 2019). The report noted that the building structure, shell, and interiors are generally in good to fair condition. JLL further noted that there are concerns regarding some of the mechanical systems (e.g., sprinkler, domestic water distribution, sanitary lines, variable frequency drives (VFDs), and Uninterruptible Power Supply) that JLL assesses as high risk of failure and these needed to be addressed by the Service Provider. Morningstar DBRS understands that the Service Provider has an action plan for each of the items identified by JLL and ProjectCo's five-year lifecycle budget (2025-29) has been adjusted to address the issues outlined in the JTR. Morningstar DBRS further notes that the concern regarding the VFDs associated with the Air Handling Units relates to the risk of future equipment malfunction because these are normally running at full capacity. The replacement of VFDs is already under way under the current lifecycle replacement schedule. ProjectCo confirmed that approximately 60% of the VFDs have been replaced and an additional 10 VFDs are scheduled for replacement in 2025.

A first look-forward lifecycle assessment is currently being performed by the Lenders' Technical Advisor (LTA). Based on the preliminary results of the lifecycle look forward test and building condition assessment report, the LTA believes ProjectCo's five-year lifecycle budget (included the lifecycle costs to address the issues outlined in the JTR) is sufficient to cover the lifecycle requirements for the next five years (2025-29). The LTA further notes that there is no lifecycle deficit amount that is required to be funded by ProjectCo because there is sufficient remaining lifecycle payment to cover the projected lifecycle cost to meet handback requirements.

ProjectCo indicated that the Project's actual annual energy consumption in 2024 was less than the annual energy target; thus, BML received an energy gainshare amount from the Hospital.

CREDIT RATING DRIVERS
A positive credit rating action is unlikely because ProjectCo is not expected to materially outperform its financial projection on a sustained basis based on the contractual structure of the agreements with the Hospital and the Service Provider. Morningstar DBRS could take a negative credit rating action if ProjectCo incurs significant failure points as a result of a material deterioration in its operating performance. Furthermore, a persistently higher-than-expected lifecycle cost may result in a material deterioration of the financial metrics, which may lead to a negative credit rating action.

FINANCIAL OUTLOOK
For the year ended September 2024, the debt service coverage ratio (DSCR) of 1.57 times (x) was higher than the projected DSCR of 1.44x. The higher-than-expected DSCR was primarily related to higher-than-expected interest income and lower-than-expected lifecycle cost. Since operations commenced in 2013, ProjectCo's actual lifecycle cost has consistently been lower than the projected lifecycle cost. In 2014-24, ProjectCo's actual lifecycle cost was nearly 30% less than the projection. For the year ended March 2025, ProjectCo's DSCR was 1.45x.

According to ProjectCo's five-year lifecycle budget (2025-29), the total lifecycle cost during this period is projected to remain slightly lower than the financial model projection at around $12.7 million. In addition, the accumulated unspent lifecycle amount in 2014-24 will provide ProjectCo additional liquidity in the event the lifecycle cost in 2025-29 exceeds the budgeted amount without negatively affecting the DSCR.

The Project's minimum DSCR of 1.44x, coupled with O&M resilience of 83.9% and lifecycle resilience of 76.5%, remains supportive of the "A" credit ratings.

CREDIT RATING RATIONALE
The credit ratings are underpinned by the following strengths: (1) complexities associated with maintenance are generally fewer than those typically associated with an acute-care facility; and (2) an early look-forward lifecycle assessment of the Project that will require ProjectCo to fund any lifecycle deficit amount through the cash flow waterfall. Conversely, ProjectCo is exposed to lifecycle risk such that if there is an unexpected material increase in lifecycle cost that exceeds the available lifecycle payment and lifecycle reserve amount, this could potentially erode the financial resiliencies of the Project materially. However, Morningstar DBRS notes that the preliminary results of the first look-forward lifecycle assessment indicate that the remaining lifecycle payments from the Hospital are sufficient to cover the projected lifecycle cost to meet handback requirements.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (May 16, 2025), https://dbrs.morningstar.com/research/454196.

BUSINESS RISK ASSESSMENT (BRA) AND FINANCIAL RISK ASSESSMENT (FRA)
(A) Weighting of BRA Factors
In the analysis of ProjectCo, the relative weighting of the Rating Driver factors listed in Part One¿Rating Availability-Based PPPs of the methodology was approximately equal.

(B) Weighting of FRA Factors
In the analysis of ProjectCo, the following FRA factor listed in Part One¿Rating Availability-Based PPPs of the methodology was considered more important: O&M and lifecycle breakeven ratios.

(C) Weighting of the BRA and the FRA
In the analysis of ProjectCo, the FRA carries greater weight than the BRA.

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

Morningstar DBRS applied the following principal methodology:
-- Global Methodology for Rating Public-Private Partnerships (August 13, 2024), https://dbrs.morningstar.com/research/437820

Morningstar DBRS credit ratings may use one or more sections of the Morningstar DBRS Global Corporate Criteria (February 3, 2025; https://dbrs.morningstar.com/research/447186), which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.

The following methodology has also been applied:
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (May 16, 2025), https://dbrs.morningstar.com/research/454196

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

A description of how Morningstar DBRS analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/431153.

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@morningstar.com.

The credit ratings were initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for these credit rating actions.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with these credit rating actions.

These are solicited credit ratings.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS trends and credit ratings are under regular surveillance.

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