• Healthcare financing project wins through despite economic recession


    One of the largest and most ambitious public-private healthcare schemes in the UK – the £600m contract to build and operate the Southmead Hospital in Bristol – faced the challenge of raising the considerable finance it required during the most turbulent period in the debt markets for decades.

    The Project Finance team at Lloyds Bank and Carillion, the FTSE-250 quoted construction and support services company, teamed up to bid for the project in March 2007. By the time their joint venture was named preferred bidder for the new “super hospital” on the North Bristol NHS Trust’s existing site at Southmead in March 2009, the financial world was a very different place. Yet, they managed to close a £627m senior debt package for the project less than a year later on 25th February 2010.

    Recognising how tough conditions in the financial markets had become by that point, the NHS Trust and its advisers adopted a non-standard procedure for the funding. Together with the two sponsors, it appointed legal, technical and insurance advisers shortly after the selection of a preferred bidder. The Trust had also already secured a £250m commitment from the European Investment Bank to reduce the amount of debt that the project would need to raise from the commercial markets.

    The sponsors’ financial adviser ran a funding competition at the end of the summer, which led to the appointment of Lloyds Bank as a pathfinder bank on the basis of its experience, the terms it could offer, and the resources (both human and financial) that it could devote to the project. The bank secured an early indicative credit approval for a debt ticket in excess of their final commitment of £150m to ensure finance would be deliverable to the project timetable, even if some of the other lenders it approached ultimately decided not to participate.

    Together with the Consortium Lloyds Bank approached other potential funders early in the final quarter of last year, which led to 5 Mandated Lead Arrangers overall in the commercial banking group: Royal Bank of Scotland (co Pathfinder Bank) with £75m; NAB and Crédit Agricole with £51m each; and Société Générale with £50m. The size of the Lloyds Bank commitment was crucial in keeping the lending group to a manageable number. This was important, as it enabled the Trust and sponsors to maintain some competitive pressure on the pricing of the debt at a time when the cost of the project could otherwise have become unaffordable. (Lloyds Bank has subsequently received several reverse enquiries from other institutions interested in the deal.)

    The £377m commercial tranche of the debt (excluding the EIB facility) includes an equity bridge facility of £97m and a change-in-law facility of £14m; the latter to cover additional capex requirements resulting from legal changes post construction. The pricing on the commercial debt has not been disclosed but is comparable to that on other accommodation deals.

    The new Southmead Hospital will be a showcase development. Built on the Trust’s existing 24.8 hectare site, it will be a single building with a central concourse in the form of an atrium that runs the full length of the building and separates wards from the clinical/treatment areas. The wards will lead off the atrium in angled “fingers” to form courtyards that will offer patients ample light and external views while preserving the necessary degree of privacy. The area covered by the building will be about 115,000 square metres. The hospital will house 832 acute beds, 75% of which will be in single rooms with en-suite bathroom facilities to offer patients more privacy and dignity, and 24 operating theatre suites. It will also have a new accident and emergency department, 2,700 car parking spaces for staff, visitors and patients, and improved public transport links.

    The new facility will consolidate the North Bristol NHS Trust’s provision of specialist care to a population of 500,000 on to a single site and is a central plank in the wider Bristol Health Services plan to rationalise acute services across the city, North Somerset and South Gloucestershire. It will also help to regenerate the Southmead area of North Bristol.

    It has been designed to be the most sustainable modern acute hospital in the UK, with the highest rating in terms of environmental impact assessment and a carbon footprint that is well under the government’s target for such developments. The construction will take place in two phases over a period of 64 months. The first phase will cover the main new hospital building, which is due to open in 2014, while the second will involve the demolition of the existing hospital on the site and the construction of the car parks, a sterile services department and landscaping of the site.

    To avoid undue pressure on the building programme, the Trust entered into an advanced works programme with Carillion Construction in August to enable work to start ahead of financial close. The Hospital Company (Southmead) venture between Carillion and Lloyds Bank has a contract worth £600m over a period of 35 years and 4 months (including the construction phase), which constitutes £430m of construction services and £170m of facilities management and maintenance services. It includes the procurement, purchase, supply and installation of all medical equipment.

    The contract covers “hard” facilities management services - estate maintenance, pest control, upkeep of grounds and gardens, helpdesk operations, and utilities. “Soft” facilities management services, such as catering, cleaning, and laundry, will remain the responsibility of the trust.

    The hospital is the first healthcare PPP/PFI project on which Lloyds Bank and Carillion have teamed up, and also their largest single joint undertaking. The two have a long-standing corporate banking relationship and had previously been co-investors on three other PFI schemes - the South Ayrshire Schools, Renfrewshire Schools, and Leeds Social Housing projects. Lloyds Bank had also acted as a lender to two earlier PFI healthcare projects - the £160m Great Western Swindon Hospital and the £108m Darrent Valley Hospital. Lynn Oliver, Transactions Director at Carillion Private Finance, said the bank’s support had been crucial.

    “Lloyds Bank ability to provide an integrated financing solution and their outstanding execution were instrumental in Carillion securing this project.”

    For the Project Finance Team at Lloyds Bank, the closure of the Southmead financing represented another milestone in its involvement in a range of public private projects across the UK, Europe and North America.

    “This successful transaction demonstrates our commitment to investing in, and providing the financing to key social infrastructure projects in the UK,” said Gershon Cohen, Managing Director & Global Head of Project Finance, Lloyds Bank.


5/31/2020 8:46:03 PM