DBRS Confirms “A” Rating of Plenary Health Hamilton LP

DBRS Limited (DBRS) has today confirmed the rating of the $255 million Long Term Senior Bonds issued by Plenary Health Hamilton LP (ProjectCo) at “A” with a Stable trend. 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 Hospital).

The Project successfully achieved substantial completion on the target date of December 6, 2013. Final completion continues to be delayed, although work is progressing toward completion. DBRS notes that a delay in achieving final completion does not affect the Project, as the value of the outstanding work has been withheld by the Hospital and, in turn, from PCL Constructors Canada Inc. The remaining work is primarily related to software updates and the required monitoring of the integrated security system. Progress has been slower than anticipated since the units are occupied 24 hours a day, seven days a week, which made scheduling the required eight-hour shutdown to perform the software updates difficult. The software updates are now complete, but the fulfillment of monitoring requirements after the completion of the software updates is still outstanding. The final steps are expected to be done by the end of fall 2016, and ProjectCo anticipates that the final completion certificate will be granted once the security-system activities have been fully completed.

The Project is now in its third year of the 30-year service phase, during which Honeywell Limited/Honeywell Limitée (the Service Provider) is performing 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 the expiry of the Project Agreement. 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 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. The debt service coverage ratio (DSCR) of 1.26 times (x) achieved at the end of the second year of operations is slightly higher than the projected amount of 1.22x because of the timing of the payments for some expenses. As at the last compliance certificate for the 12-month period ending May 31, 2016, the DSCR was 1.21x and the projected DSCR continues to be above 1.22x.

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 applicable methodology is Rating Public-Private Partnerships (March 2016), which can be found on our website under Methodologies.

DBRS will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrs.com.