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

DBRS Limited (DBRS) confirmed the rating of the Senior Amortizing Bonds (Series A) issued by Plenary Health Bridgepoint LP (ProjectCo) at “A” with a Stable trend. ProjectCo is the special-purpose vehicle to design, build, finance and maintain a new 472-bed hospital and refurbish the adjacent old Don Jail for administrative purposes under a 33.6-year Project Agreement with Bridgepoint Hospital, one of Ontario’s largest complex-care institutions.

Virtually all of ProjectCo’s responsibilities during the service phase have been passed down to Johnson Controls LP (JCLP or the Service Provider) under an indexed fixed-price contract.

ProjectCo is 57 months into its operating phase, and while it incurred higher failure points and deductions compared with 2016, both factors remain well below the contractual thresholds. For the last 12 months ended August 2017, total failure points trended higher to about 5,600, giving rise to approximately $40,000 in deductions, compared with about 4,000 failure points and about $25,000 in 2016. The risk of incurring failure points and deductions has been passed down to JCLP with no impact on ProjectCo’s operating cash flow.

The Facilities Management contract also contains an annual energy painshare/gainshare mechanism. The Project’s energy consumption for the last 12 months ended June 2017 was 9.7% lower than the annual target level, resulting in an energy gainshare adjustment of about $123,000, payable to JCLP.

Since operations commenced in March 2013, the Project’s financial performance has been roughly in line with DBRS’s expectations. For the last 12 months ended August 2017, the Project’s senior debt service coverage ratio (DSCR) was 1.20 times (x) compared with 1.17x last year. The lower DSCR in 2016 was a result of a one-time payment for work incurred during the construction phase. ProjectCo is projecting a senior DSCR of about 1.21x for the year ended August 2018. ProjectCo’s operating and maintenance (O&M) and lifecycle resiliencies of 78% and 87%, respectively, are considered strong for the rating and provide it with more capacity to absorb any potential O&M and lifecycle cost increases compared with peers.

Based on ProjectCo’s operating track record and its experienced Service Provider, DBRS believes its performance will remain relatively stable. Negative rating pressure could result from a downgrade in the Province of Ontario (rated AA (low) with a Stable trend by DBRS) or if there is material deterioration of operating and financial performance of ProjectCo. DBRS believes that a positive rating action is unlikely.

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 in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.

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.