All trends are Stable. The Issuer Rating is based on DBRS Morningstar's updated 'Rating Companies in the Canadian Long-Term Care Industry' methodology released on
Prior to the pandemic, Sienna's operating performance was strong and its FRAs were improving, consistent with DBRS Morningstar's expectations when finalizing the provisional rating on the Debentures in
While there has been a notable decline in EBITDA, we expect extraordinary pandemic expenses to gradually subside and to be partially recovered through government grants. As such, we believe that Sienna's Q2 2020 results likely reflect the depth of the deterioration in its financial metrics because of the pandemic, and we anticipate a gradual recovery in the coming quarters as strong demand and stable government funding continue to support revenue and extraordinary pandemic expenses subside. For 2020, DBRS Morningstar expects the consolidated debt-to-EBITDA ratio, excluding cash set aside for debt repayment, to rise to 7.3 times (x), from 6.6x in 2019, before improving to 6.6x in 2021. Similarly, the consolidated EBITDA-to-interest ratio is likely to drop to 3.7x in 2020 before recovering to 4.2x in 2021. All ratios are DBRS Morningstar-adjusted.
While considerable uncertainty remains about the ongoing transmission and duration of the coronavirus, Sienna is well positioned to benefit from strong demand for seniors housing given its portfolio of high-quality residences. Furthermore, the Company continues to take steps to mitigate the impact of a second wave of the coronavirus, including enhanced staffing and training, improved infection control measures, and proactive procurement of personal protective equipment.
RATING DRIVERS
Although not anticipated, DBRS Morningstar may consider a negative rating action if the pro forma financial risk metrics deteriorate on a sustained basis, with a consolidated debt-to-EBITDA ratio trending toward 8.0x or above and a consolidated EBITDA interest coverage trending toward 3.5x or below. DBRS Morningstar cautions that the above-noted metrics are cited on a consolidated basis, while DBRS Morningstar assesses Sienna's key financial risk metrics on a segmented basis for LTC and retirement. A positive rating action is unlikely in the near term given the challenging operating environment and deterioration in financial metrics.
ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.
Notes:
All figures are in Canadian dollars unless otherwise noted.
The principal methodologies are Rating Companies in the Canadian Long-Term Care Industry (
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.
For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.
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Ratings
Date Issued Debt Rated Action Rating Trend Issued
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CA = Canada Issued, NRSRO
EU = EU Issued, NRSRO
E = EU endorsed
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14-Sep-20 Issuer Rating New Rating BBB Stb CA
14-Sep-20 Senior Unsecured Debentures Confirmed BBB Stb CA
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