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02 Nov 2007
Moody's rates new debt of The Walsall Hospital Company plc
Approximately GBP149 million of new debt facilities rated
London, 02 November 2007 -- Moody's Investors Service has assigned a provisional (P)Aaa rating to
approximately GBP149 million of index-linked guaranteed secured
bonds due 2041 (the "Bonds") to be issued by The Walsall Hospital Company
plc (the "Issuer"). The (P)Aaa rating of the Bonds is based solely
upon the unconditional and irrevocable guarantee of scheduled principal
and interest by Financial Security Assurance (U.K.) Limited
("FSA", Aaa insurance financial strength rating). The outlook
on the (P)Aaa rating is stable
Moody's has also assigned a (P)Baa2 underlying rating to the Bonds,
assuming that the financial guarantee insurance policy to be issued by
FSA is absent. Moody's rating rationale for the (P)Baa2 underlying
rating is set out in a pre-sale report which will be made available
The Issuer will enter into a long-term project agreement (the "Project
Agreement") with Walsall Hospitals National Health Service Trust in relation
to the construction of approximately 36,000m2 of new facilities
at the Walsall Manor Hospital and the provision of hard facilities management
services during the term of the Project Agreement. The new facilities
will include (i) a Diagnostic & Treatment Centre ("DTC")
with specialist clinics and outpatient services, day case facilities
and operating theatres; (ii) a Women's, Children and
Young Persons Centre ("WCYP") which will provide integrated
care for both inpatients and outpatient visitors with a dedicated diagnostic
unit and operating theatre; (iii) a Multi-Professional Education
Centre ("MPEC") providing training facilities; and (iv)
a new reception area with shops, cafeterias and seating.
The Project Agreement will become effective upon the date on which the
Bonds are issued, and will have a term of 33 years and 2 months.
The Issuer will enter into a firm-price, date-certain
construction contract with an unincorporated joint venture comprising
Skanska Major Projects Limited ("SMPL") and Skanska Rashleigh
Weatherfoil Limited ("SRW") which will substantially transfer
construction risk. Both members of the joint venture are subsidiaries
of Skanska AB and it will guarantee their obligations. Total construction
cost will be approximately GBP149 million (excluding GBP13 million of
advance works that have been carried out under the terms of a separate
contract and a GBP9 million capital contribution that will be made by
There are three construction phases. The WCYP and MPEC are due
to be completed in April 2010 whilst the DTC and a new pathology laboratory
are due in August 2010. Demolition of the buildings that are being
replaced and landscaping to create a new visitors car park is expected
to be completed in May 2011.
The primary source of revenue for the project is the monthly service payments
("Service Payments") under the Project Agreement, which step up
during construction upon completion of key milestones, and which
are adjusted for RPI indexation annually. 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
The Issuer will retain lifecycle risk in relation to the new facilities
(but not the existing facilities) - such lifecycle risk is mitigated
by a market standard cash reserving mechanism. The Issuer will
subcontract the provision of hard facilities management services to SRW
and Moody's deems Project Co's exposure to operational performance risk
in relation to the performance of the subcontractor to be low.
The Issuer will not be responsible for the provision of any soft facilities
management services or any other services.
The Bonds 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 and, based on Moody's analyses of comparator
transactions, the underlying rating is appropriately positioned
The rating of the bonds will follow the rating of FSA. The underlying
credit is exposed to challenges during both the construction and operations.
Factors that would cause the underlying rating to be downgraded include
material delays in the construction works, or deterioration in the
credit profile of Skanska AB.
The underlying rating has some potential for upgrade following successful
completion of the construction phase.
The Issuer is wholly owned by The Walsall Hospital Company (Holdings)
Limited, which in turn is owned equally by Innisfree Nominees Limited
(acting as nominee for Innisfree PFI Fund III Limited Partnership) and
Skanska Infrastructure Investment UK Limited.
Thomas J. Keller
Project Finance Group
Moody's Investors Service
Vice President - Senior Analyst
Project Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
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