Morningstar DBRS Confirms Plenary Health Bridgepoint LP at "A," Maintains Stable Trends

DBRS Limited (Morningstar DBRS) confirmed the Issuer Rating and the Senior Amortizing Bonds (Series A) rating of Plenary Health Bridgepoint LP (ProjectCo) at "A." All trends are Stable. ProjectCo is the special-purpose vehicle (SPV) created to design, build, finance, and maintain a new 472-bed hospital (the Project) in Toronto and refurbish the adjacent historic Don Jail for administrative purposes under a 33.6-year Project Agreement (PA) with Bridgepoint Hospital (BH or the Hospital), one of the Province of Ontario's (Ontario or the Province; rated AA with a Stable trend by Morningstar DBRS) largest complex-care institutions. ProjectCo's responsibilities during the service phase have been largely passed down to Johnson Controls Canada LP (JCLP or the Service Provider) under an indexed, fixed-price contract.

KEY CREDIT RATING CONSIDERATIONS
In the 12 months to August 31, 2024, ProjectCo experienced a decrease in deductions and failure points compared with the same period in 2023. A modest number of mainly minor plant service events were recorded every month during this period. The total number of failure points remains well below the Facilities Management (FM) Contract's warning notice and monitoring notice thresholds. ProjectCo indicated that the condition of the facility remains relatively good, and lifecycle spending has been in line with the financial model at financial close. The relationship between the ProjectCo, Service Provider, and the Hospital remains collaborative. Any associated energy gainshare or painshare during the operations phase is passed down to the Service Provider, and thus does not affect the cash flows of the ProjectCo.

For the 12 months to August 31, 2024, ProjectCo's senior debt service coverage ratio (DSCR) was 1.22 times (x). The DSCR was slightly higher than the projected DSCR of 1.20x due to higher interest income. ProjectCo's O&M and lifecycle resiliencies of 78% and 87%, respectively, remain supportive of its credit ratings.

CREDIT RATING DRIVERS
Morningstar DBRS could take a negative credit rating action if the Project's operating performance deteriorates materially, leading to an accumulation of failure points that could potentially trigger various contractual default thresholds or a replacement of the Service Provider. Because of the fixed-price service contract, there is limited upside to the Project's financial metrics that could support a positive credit rating action, which is unlikely in the near future.

FINANCIAL OUTLOOK
ProjectCo is projecting a senior DSCR of about 1.20x for the year ending August 31, 2025, which supports the current credit rating range.

CREDIT RATING RATIONALE
The credit ratings are supported by strengths that include (1) a low public-sector counterparty risk, (2) the lenders' step-in rights, (3) an experienced service provider, and (4) the tight payment mechanism. The challenges include the lower limit of Service Provider liability.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors 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 (August 13, 2024) https://dbrs.morningstar.com/research/437781.

RATING DRIVER AND FINANCIAL RISK ASSESSMENT (FRA)

A) Weighting of Rating Drivers
In the analysis of the Issuer, the relative weighting of the Credit Rating Driver factors listed in Part One - Rating Availability-Based PPP of the methodology was approximately equal.

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

C) Weighting of the Rating Drivers and the FRA
In the analysis of the Issuer, the FRA carries greater weight than the Credit Rating Drivers.

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 (April 15, 2024), https://dbrs.morningstar.com/research/431186, 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 ESG Factors in Credit Ratings (August 13, 2024); https://dbrs.morningstar.com/research/437781

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 rating was initiated at the request of the rated entity.

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

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

This is a solicited credit rating.

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.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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