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Rating Action:

Moody's rates new debt of Consort Healthcare (Mid Yorkshire) Funding plc

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 "EIB Loan").

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 www.moodys.com).

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).

London
Stuart Lawton
Managing Director
European Corporates
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Johan Verhaeghe
Vice President - Senior Analyst
European Corporates
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

No Related Data.
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