ProjectCo is the special-purpose entity created for the design, construction, financing, maintenance, and rehabilitation of
The Project achieved interim completion on
A joint technical review of the Project was performed by
DBRS Morningstar notes that ProjectCo retains the lifecycle risk of the Project. Although the presence of a three-year look-forward lifecycle reserve mitigates some of the risk, persistently higher-than-expected deterioration of the Project could drive lifecycle costs up considerably (beyond the reserve amount). If that were to occur, it could potentially affect the financial metrics negatively. However, at this time, DBRS Morningstar does not believe such a potential event would affect the financial metrics in the near term.
Since the beginning of the Coronavirus Disease (COVID-19) pandemic, the Project has continued to operate smoothly (including a fully operational COVID-19 Assessment Centre) and BML continues to operate in accordance with all health and safety protocols. The number of failure points and deductions incurred in 2020 (after the relief granted by the Hospital) declined by about 30% and 5%, respectively. However, in the first three months of operations in 2021, the number of failure points and deductions increased by more than 31% and 80%, respectively, compared with 2020. These were related to water leaks in multiple areas of the building and elevator performance issues. ProjectCo indicated that the water leaks occurred primarily at the joints and the Service Provider has repaired the affected pipes and replaced the damaged tiles and ceilings. Furthermore, BML inspected the affected areas and did not identify any major issues with the water pipes. DBRS Morningstar notes that, despite the sharp increase in the number of failure points and deductions, these remain well below the warning and monitoring notices of the contractual thresholds. In addition, the deductions incurred have been passed on to the Service Provider, so there has been no financial impact on ProjectCo.
DBRS Morningstar understands that there is an ongoing dispute with the Hospital related to the monitor replacement cost over the terms of the PA. While discussions are ongoing, ProjectCo indicated that it is finalizing the plan to replace the monitors this year and will be funding the replacement cost from project cash flow. DBRS Morningstar understands that the replacement cost is relatively minor and is not expected to affect the financial metrics materially this year. Furthermore, ProjectCo confirmed that it reserves the right to recover the replacement cost from the Hospital, subject to the resolution of the ongoing dispute.
ProjectCo confirmed that the energy base year has been finalized and accepted by the Hospital. ProjectCo and the Hospital are finalizing the standard operating procedure for calculating energy performance painshare and gainshare. Because the annual energy target has yet to be established, no energy gainshare/painshare has been applied since substantial completion was achieved in 2015. BML continues to measure the consumption of energy in accordance with the PA.
Despite the ongoing dispute related to the monitor replacement issue, ProjectCo indicated that the relationship between the Hospital, ProjectCo, and the Service Provider is good.
For the year ended
ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.
Notes:
All figures are in Canadian dollars unless otherwise noted.
The principal methodology is Rating Public-Private Partnerships (
For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.
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@dbrsmorningstar.com.
The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.
Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.
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