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13 Jun 2007
Moody's rates new debt of Consort Healthcare (Mid Yorkshire) Funding plc
Approximately GBP370.1 million of debt facilities rated
London, 13 June 2007 -- Moody's Investors Service has assigned the following provisional
(P) ratings to the debt to be issued by Consort Healthcare (Mid Yorkshire)
Funding plc (the "Issuer"):
- (P)Aaa rating to approximately GBP220.1 million of index-linked
secured Bonds due 2041 (the "Bonds"), and
- (P)Aaa rating to GBP150.0 million of index-linked
pari passu guaranteed secured European Investment Bank loan due 2040 (the
The ratings of the Bonds and the EIB Loan are based solely upon the unconditional
and irrevocable guarantee of scheduled principal and interest (as adjusted
for indexation) by FGIC UK Limited and FGIC respectively ("FGIC",
Aaa insurance financial strength rating) pursuant to a financial guarantee
insurance policy. The outlook on the (P)Aaa ratings is stable.
Moody's has also assigned (P)Baa3 underlying ratings to the Bonds
and the EIB Loan, assuming the absence of any financial guarantee
insurance policies from FGIC. Moody's rating rationale for
the (P)Baa3 underlying ratings is set out in a pre-sale report
on Consort Healthcare (Mid Yorkshire) Funding (which can be accessed at
The Issuer is a financing conduit that will on-lend the proceeds
of the Bonds and proceeds of the Loan to Consort Healthcare ("ProjectCo").
ProjectCo will enter into a 35-year Project Agreement with the
Mid Yorkshire Hospitals NHS Trust (the "Trust") to design,
redevelop and finance healthcare facilities on two sites, namely
the development of the 86,406 square metre Pinderfields General
Hospital site in Wakefield as a major acute centre for the district (with
an integral ambulatory care and diagnostic centre), and the 21,057
square metre Pontefract General Infirmary site which is being redeveloped
as an ambulatory care and diagnostic centre (with other facilities for
accident and emergency, and maternity).
The total construction price of approximately GBP310 million (79%
Pinderfields; 21% Pontefract) will be spread over a 4.5-year
(or 54-month) construction period. Construction at Pinderfields
is scheduled to be largely completed 42 months after Financial Close ("FC")
whereas construction at Pontefract is expected to be almost completed
29 months after FC. It is a complex phased multi-stage construction
programme requiring timely decanting and commissioning. Construction
programmes at both sites are largely independent. ProjectCo has
entered into a firm-price, date-certain construction
contract with a Construction Joint Venture ("CJV") consisting
of Balfour Beatty Construction (Northern) Limited and Haden Young Limited
which substantially transfers construction risk to the CJV and its parent
company guarantors (both CJV partners are wholly owned subsidiaries of
Balfour Beatty plc). Additionally, ProjectCo benefits from
certain financial structural features, including an amount of third-party
support for the contractor's obligations, thus providing adequate
protection at the (P)Baa3 rating level against delays on construction
completion and costs that may be incurred to replace the construction
contractor if this were needed.
The primary sources of revenue for ProjectCo are the monthly service payments
("Service Payments"), made by the Trust, under
the Project Agreement, which step-up during construction
upon completion of key milestones, and which are adjusted annually
for RPI indexation. In common with other NHS PFI hospital projects,
Service Payments are subject to a performance monitoring regime.
Failure to meet agreed levels of performance would lead to deductions
being applied to the Service Payments and the award of service failure
points which would count towards certain thresholds for warning notices.
Sustained poor performance may lead to termination of the Project Agreement.
Moody's assesses revenue risk as low, which is typical for
PFI accommodation projects with availability-based payment mechanisms.
ProjectCo will retain the majority of lifecycle risk in relation to the
new facilities -- such lifecycle risk is mitigated by a market standard
cash reserving mechanism. Of note, there is no retained estate
within the PFI scheme (i.e. the Trust retains the maintenance
and lifecycle responsibilities for existing buildings). ProjectCo
has subcontracted the provision of Hard and Soft Facilities Management
(FM) services and certain lifecycle works to Haden Building Management
Limited, a wholly owned subsidiary of Balfour Beatty plc.
ProjectCo remains exposed to the risk of sub-contractor insolvency,
but this is considered to be adequately mitigated by the project's
ability to sustain higher costs (or lower revenues) in the event of sub-contractor
default. Furthermore, the ratings factor in the high leverage
of this project, which is usual for PFI transactions.
The Bonds and the EIB Loan benefit from financial covenants and a security
package which are market standard for a transaction of this nature.
Cashflow sensitivities in relation to the construction period and the
operational period indicate that the Project is robustly structured,
consistent with the Baa ratings category. Moody's currently
rates a number of NHS PFI hospital projects. Based on the rating
agency's analyses of comparative transactions, the underlying
ratings are appropriately positioned at (P)Baa3.
The underlying ratings are constrained by the construction profile of
the project. However, once construction is complete the underlying
ratings may be eligible for upgrade. A potential upgrade is,
however, affected by the labour cost re-pricing risk of Hard
FM service costs, which is taken by ProjectCo. The underlying
rating could be downgraded if ProjectCo were to incur material delays
in the progress of construction that could cause a delay in the payments
of the Trust's Unitary Charge.
Moody's issues provisional ratings in advance of the final sale
of securities, and these ratings only reflect Moody's preliminary
credit opinion regarding the transaction. Upon a conclusive review
of the final documentation, Moody's will endeavour to assign
a definitive rating to the Bonds and EIB Loan. A definitive rating,
if any, may differ from a provisional rating.
Moody's will monitor the transaction on an ongoing basis to ensure
that it continues to perform in the manner expected. Any subsequent
changes in the rating will be publicly announced and disseminated through
Moody's Client Service Desk.
To reserve a copy of Moody's Pre-Sale Report on this transaction,
please contact the Moody's Client Service Desk in London at 44 (0)20
7772 5454 or visit our web site http://www.moodys.com
The Issuer and ProjectCo are wholly owned by Consort Healthcare (Mid Yorkshire)
Holdings Ltd, which is in turn owned 50% by Balfour Beatty
Infrastructure Investments Limited (a wholly owned subsidiary of Balfour
Beatty plc) and 50% by Royal Bank Project Investments Limited (a
wholly owned subsidiary of Royal Bank of Scotland plc).
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Vice President - Senior Analyst
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
No Related Data.
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