Morningstar DBRS Assigns Provisional Credit Ratings of (P) A (low), With Stable Trends, to Trillium M Project Co General Partnership

DBRS Limited (Morningstar DBRS) assigned provisional credit ratings of (P) A (low) with Stable trends to Trillium M Project Co General Partnership (the Issuer or ProjectCo) and the Series A Bonds and Series B Bonds (collectively, the Bonds) to be issued by ProjectCo. The proceeds from issuing the Bonds will be used to finance the Trillium Health Partners Mississauga Site Redevelopment P3 DBFM Project (the Project). ProjectCo will be formed as a single-purpose entity and will be contracted by the Trillium Health Partners (THP) through a Project Agreement (PA) to design, build, finance, and maintain the new Peter Gilgan Mississauga Hospital in Mississauga, Ontario, until April 27, 2063.

KEY CREDIT RATING CONSIDERATIONS
The construction phase will last around 94 months from financial close. A joint venture between EllisDon Corporation and PCL Constructors Canada Inc. (the Construction Contractor) will perform all design and construction tasks on behalf of ProjectCo. The Construction Contractor's security package mainly includes sufficient liquid performance support to cover essentially all delay liquidated damage payments from the Scheduled Substantial Completion date up to the PA Longstop Date (i.e., 365 days after the Scheduled Substantial Completion). The responsibilities of the Construction Contractor under the Construction Contract will be joint and several between the two joint venture members, which will be backed by parent company guarantees from EllisDon Inc. and PCL Construction Group Inc., and subject to a 30% liability cap. Collectively the Construction Contractor's security package is considered suitable for a one-notch uplift for the construction phase.

After substantial completion (targeted April 27, 2033), the Project will enter a 30-year operating phase. Save for certain general management responsibilities, all facility maintenance (FM) and lifecycle responsibilities will be fully passed down to EllisDon Facilities Services (THPM) Inc. (the Service Provider) through a long-term service contract. Any deductions or failures points will also be passed down to the Service Provider. Thresholds for warning notice or increased monitoring under the Service Contract are same as those under the PA but the default thresholds in terms of failure points are set at 75% of the PA levels, allowing ProjectCo to replace the Service Provider before the PA is compromised.

The responsibilities of the Service Provider under the service agreement will be backed by a parent company guarantee from EllisDon Inc. The Service Provider will provide liquid performance support in cash or letters of credit (LOC) equal to 50% of FM payment during next year, plus annual average lifecycle payment. The Service Contract also features a post-termination liability cap of 200% of the annual average FM and lifecycle payment as well as a dynamic lifecycle inspection and forward-looking reserving mechanism on the 10th, 18th, and 22nd anniversary of the Substantial Completion Date. All these features are considered standard for Canadian public-private partnership (PPP) projects at the credit rating level.

The Project is being delivered with the progressive development PPP model. During the development phase, project sponsors have significantly advanced Project design, carried out productive communication with local authorities about site plan approval and building permits, and engaged in heavy negotiations with multiple price and schedule submissions. This is considered a major strength for the Project, compared with other hospital projects delivered using the traditional PPP model.

The PA includes a provision for Tariff Change in Law, allowing either party to seek compensation for any increase or decrease in costs of imported goods, equipment, or materials. The PA also includes a price-adjustment mechanism that allows ProjectCo to pass on unexpectedly high inflation on costs of labour and materials to THP through annual adjustments to progressive payments. While this mechanism is cost-neutral, it makes the contingency contained in the construction budget more reliable as contingency will not be materially eroded to cover any higher-than-expected inflation.

Site access and logistics seem to be the main challenge for the Project during construction. Given the limited space within and around the site, the Construction Contractor plans to transport its workers to the site in shuttle buses and will mainly rely on the busy Queensway West for the truck lay-by area and ingress points to the site. While project sponsors have developed a detailed logistics plan, how well the Construction Contractor will execute such plan and relevant mitigation measures remains to be seen.

CREDIT RATING DRIVERS
A credit rating upgrade is unlikely in the near term, given the limited upside revenue potential for this availability-based PPP project. During the construction phase, negative credit rating action may result from delays that materially erode project contingencies in relation to the Finance Party Longstop Date or significant deterioration of the credit qualities of the Construction Contractor's guarantors. During the operating phase, Morningstar DBRS could take a negative credit rating action if the Project's operating performance deteriorates significantly, leading to material deductions or an accumulation of failure points that may trigger various contractual thresholds.

FINANCIAL OUTLOOK
Typical of PPPs, there will be no principal repayments on the Bonds during construction. The Bond interest payments will be made semiannually and funded from the proceeds account during construction. During the operating phase, the Series A Bonds will be amortized and fully repaid by April 2043. Thereafter, the Series B Bonds will start amortizing until they are fully repaid by October 2062, which is around six months prior to the expiry date of the PA. The debt repayment profile is slightly backloaded with around 60% of total debt being repaid during the second half of the operating phase. During this time the debt service coverage ratios (DSCRs) are also relatively elevated to offset the higher lifecycle replacement costs and thereby maintain the breakeven ratio.

Our financial risk assessment is underpinned primarily by the lifecycle cost breakeven of 40.6% and a minimum DSCR of 1.20 times (x), both supportive of the credit ratings. The FM cost breakeven is approximately 44.0% and the average DSCR is about 1.31x.

CREDIT RATING RATIONALE
The credit ratings are supported by strengths that include (1) the progressive development PPP model, (2) the cost adjustment mechanism, and (3) low public-sector counterparty risk. The main challenge is the site access and logistics.

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 (May 16, 2025), https://dbrs.morningstar.com/research/454196.

CREDIT RATING DRIVERS AND FINANCIAL RISK ASSESSMENT (FRA)
(A) Weighting of Credit Rating Driver Factors
In the analysis of the Issuer, the relative weighting of the Rating Driver factors listed in the Part One--Rating Availability-Based PPPs 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 PPPs of the methodology was considered more important: O&M and Lifecycle breakeven ratios.

(C) Weighting of the Credit 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 (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.

A provisional credit rating is not a final credit rating with respect to the above-mentioned securities and may change or be different than the final credit rating assigned or may be discontinued. The assignment of final credit ratings on the above-mentioned securities is subject to receipt by Morningstar DBRS of all data and/or information and final documentation that Morningstar DBRS deems necessary to finalize the credit ratings.

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.

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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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