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Announcement:

Moody's confirms Baa2 (stable) senior secured debt rating for Collectif Santé Montréal SEC

Global Credit Research - 26 Oct 2012

C$1,370MM of debt instruments affected

Toronto, October 26, 2012 -- Today Moody's confirmed Collectif Santé Montréal Société en Commandite (Projectco) Baa2 senior secured rating. The outlook is stable. This concludes the review for downgrade initiated on May 28, 2012.

In 2011, ProjectCo entered into a 38.8-year Project Agreement with Centre Hospitalier de l'Université de Montréal (CHUM, Aa2, Stable) which is the public authority procuring a new hospital, under a Public Private Partnership scheme. ProjectCo undertakes to (i) construct the new hospital, and (ii) provide certain services during the term of the Project Agreement. Construction works involve the redevelopment of three existing hospitals (namely Hotel-Dieu, Notre-Dame Hospital and Saint-Luc's Hospital) into one new hospital. ProjectCo has subcontracted its obligations with respect to construction to a design-build joint venture (the DBJV) composed of Obrascon Huarte Lain S.A (OHL) (Ba2, negative) and Laing O'Rourke Corporation Limited (LOR, unrated). The DBJV benefits from a parent company guarantee, on a joint and several basis, from each of OHL and LOR.

On May 28, 2012, Projectco's rating was put under review for downgrade as a result of OHL being put under review for downgrade. The review process for OHL was initiated on April 27, 2012 following the announcement of OHL's transaction with Abertis and continued on June 27, 2012 following the downgrade of the Kingdom of Spain's government ratings to Baa3. On October 23, 2012, OHL's Ba2 corporate family rating, probability of default rating and senior unsecured debt ratings were confirmed with a negative outlook.

"The confirmation of OHL's ratings at Ba2 as well as Moody's assessment that OHL has adequate liquidity in the current environment helps support our view that the credit estimate for the DBJV is not materially changed compared to our assumption at financial close in mid 2011 when the Baa2 senior secured rating was assigned to Projectco," says Catherine Deluz, VP and Senior Credit Officer. "In addition, we see that the construction progress on the project has removed or alleviated some of the risks which had been identified at financial close. That's particularly true for excavation and working below the water table, site access in a constrained site, utilities, and working near an operating hospital The project is on time, with material progress as to design and procurement which gives additional comfort with respect to the adequacy of the construction budget and timeline." However, Moody's notes that OHL's outlook is still negative reflecting the challenging macroeconomic environment affecting Spain, where the company is domiciled and that OHL's rating could come under pressure if, among other things, the sovereign rating is downgraded to speculative grade or if OHL's liquidity profile deteriorates significantly. Moody's view of the risk of Laing O' Rourke (the other party to the DBJV) has not changed since financial close.

RATING RATIONALE

The Baa2 rating assigned to Projectco reflects the combination of the assessment of the construction complexity being high (although with some elements of risk satisfactorily resolved); the insulation of lenders from Phase 2 risk; the rating of the DBJV formed between Laing O'Rourke and OHL; the adverse effect of the government construction payments; the quality and amount of the security posted during construction (a 50% liability cap, translating into a 62.7% liability cap of Phase 1; a 17% letter of credit and a 12.5% performance bond --all as a percentage of Phase 1 construction costs). Even though some of the construction risks have been resolved satisfactorily, a material portion of the risk in a complex building such as a large hospital resides in the installation and commissioning of the mechanical and electric component of the project (which represents a material portion of the total construction budget). Hence, we still view the project as being complex, since the construction of the buildings is only starting.

The rating incorporates the assumption that the project will continue to be largely on time and budget, that the counterparties providing the construction security will not weaken, that the ratings of the two DBJV parties will not deteriorate further, and that the rating of the Province of Quebec (which provides 45% of the construction cost funding) will not deteriorate.

The outlook is stable reflecting the good performance of the project construction.

WHAT COULD CHANGE THE RATING UP/DOWN

The rating is sensitive to the rating of the two parties in the DBJV, the rating of the Province of Quebec as well as the rating of the main providers of the construction security. In addition, the rating could be downgraded if the project incurs material delays or if a party to the DBJV needs to be replaced at a substantially higher cost. The rating will likely improve upon completion of Phase 1 (assuming a completion on time and budget and upon the demonstration by Projectco that it can operate the new hospital with few deductions to the availability payments).

PRINCIPAL METHODOLOGY

The rating of the senior secured debt issued by Collectif Santé Montréal SEC is derived from the application of the rating methodology applicable to the Construction Risk in Privately- Financed Public Infrastructure (PFI/PP/P3 ) Projects.

Projectco is wholly owned by Innisfree PFI Secondary Fund LP (30%), acting by its manager Innisfree Limited, OHL (25%), Laing O'Rourke PLC (25%) and Dalkia Canada Inc. (20%).

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Catherine N. Deluz
VP - Senior Credit Officer
Project Finance Group
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
(416) 214-1635

Chee Mee Hu
MD - Project Finance
Project Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
(416) 214-1635

Moody's confirms Baa2 (stable) senior secured debt rating for Collectif Santé Montréal SEC
No Related Data.

 

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