HICL Infrastructure Company Limited
Case Study
Queen Alexandra Hospital
September 2010
www.hicl.com
1
Queen Alexandra Hospital (“QAH”) – a PFI project case study
Queen Alexandra Hospital (“QAH”) PFI project
Acquired by HICL in June 2010
Acquired from Carillion Private Finance Limited and Royal Bank Project Investments Limited (RBS)
Visitor car
parking
Refurbished
Existing Hospital
Hospital
new build
Helipad
Multi-storey
staff car park
A&E
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Queen Alexandra Hospital (“QAH”) – Discussion topics
History
Facilities
Structure and contracts
Revenues and cashflows
Funding
Asset management
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Project timeline
OJEC1 notice
2001
Preferred bidder
2003
Signed
2005
Construction completed
2009 – 2010
Fully operational
2010
HICL acquires interest
2010
Concession ends
2040
1. Official Journal of the European Union
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4 4
Client
Portsmouth Hospitals NHS Trust
One of the largest acute teaching trusts in UK
The new QAH brought together 3 hospitals into one site: the pre-existing QAH, St. Mary’s Hospital in Portsmouth and the Royal Hospital
Haslar in Gosport
Employs around 7,800 staff
Around 1,400 inpatient beds
Turnover of around £432m p.a.
Major provider of education and training of under and post-graduate nurses, doctors and pharmacists
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Contractual structure
Client
NHS Trust
Project
agreement
Financial
Guarantor
HICL
74.9%
Secretary of State
for Health
Financing
agreements
Project
Company
Holding Company
Shareholders
agreement
25.1%
RBS
Sub-contractors
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Construction
sub-contract
SPC day to day
management
Operating
sub-contract
Carillion
Construction Ltd
Carillion Services
Ltd
Carillion Services
Ltd
Sub-contractors
6 6
Project agreement
Concession of 30.5 years post construction*
Once built, contractual monthly payments for serviced facilities, subject
to:
RPI annual indexation
Performance deductions
Un-availability deductions
Agreement covers items such as:
Specification of services to be provided and relevant
quality/quantity thresholds
Variation mechanics
Dispute resolution procedures
Termination events and compensation payments
Handback criteria
*Construction was completed in June 2010
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Construction
Fixed-price, turnkey contract of £248.7m
55 monthly payments, subject to technical adviser’s sign-off
Built by Carillion Construction Ltd
Parent company guarantee from Carillion plc
Cap on liability: 50% of contract sum
12 months of delay liquidated damages
3% retention amount
12 year latent defect period
Programme
Construction started: December 2005
Target completion date: over 3 phases between 15 June 2007 to 15 June 2010. Main works completed 15 June 2009.
Start of operations: 16 June 2009
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Construction in progress
Aerial site before
Phase 2 frameworks
Aerial during phase 2
Aerial of car parks and site office
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Aerial phase 1 helipad
9 9
Services
Estates Services
Building maintenance
Grounds maintenance
Catering
Portering
Linen & laundry
Housekeeping
Help desk
Car Parking
Retail
Coffee bars
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Benchmarking and market testing
Commences in 2014 and every 5 years thereafter
All services other than Estates Services and Help desk
Benchmarking initially, client option to market test
Project Co responsible for managing and co-ordinating Market Testing
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Performance monitoring
Helpdesk logs all problems
Rectification times
Service Response times
Service Failure points
Unavailability deductions – areas weighted
Service failures passed to Facilities Management (“FM”) contractor
Unavailability deductions passed down unless Project Co caused
All payment deductions to date passed down to sub-contractors
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Revenue basics
Single monthly unitary fee from client
NPV of base case revenue £468m
Variable monthly payments for meals and utilities – passed down to
FM contractor
Base revenue of £32.9m (real) pa
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Indexation
▲
▲
Revenue and Operating Costs
▲
Annual indexation
▲
RPI index is RPI (all items)
▲
Base date of April 2002
▲
Contract year commences in December
▲
Indexation uses preceding February index
▲
Sub-contract indexation is similar
Senior Debt
▲
Index-linked guaranteed loan from Secretary of State for Health
▲
RPI Index
▲
Base date April 2005
▲
Indexation semi-annually at Mar and Sep using previous Jan and
July indices respectively
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Revenue and costs - cashflows
£100,000
£90,000
£80,000
£70,000
£000's
£60,000
£50,000
£40,000
£30,000
£20,000
£10,000
Senior debt service
Tax
Operating revenue + interest
Opex + reserve movements
Shareholder loan note service
2042
2041
2040
2039
2038
2037
2036
2035
2034
2033
2032
2031
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
£0
Lifecycle
Dividends
Source: HSFML: Taken from the project’s financial model
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1515
Operational Cash cascade
Revenues, less
operating costs, less tax
Pre-finance post
tax operating cash
flows
Senior debt and
working capital
financing charges
Cash flow available
for reserve
deposits
Deposits to
senior debt,
and asset
renewal reserves
Shareholder debt
service
Cash flow available
for shareholder
debt service
Payment of loanstock &
interest to shareholders
Cash flows
available for
dividend
distributions
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Payment of dividends to
shareholders
1616
Funding the project
Index-linked guaranteed loan from Secretary of State for Health
£262m guarantee loan
£3m stand-by facility
£24.3m equity bridge facility
Shareholders
£24.3m loan stock
£50k equity
Debt : shareholder funds – 91.5% : 8.5%
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Sources & uses of funds, during construction
400
Interim Revenue
350
Shareholder equity & loan notes
300
Senior Debt
£m's
250
Pre-funding of Reserve Accounts
Interest during Construction
200
Overhead
150
FM Start-Up Costs
100
Development Costs
50
Construction Costs
Uses
Sources
Source: HSFML: Taken from the project’s financial model
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1818
Key funding terms
Guaranteed Loan (£262m facility)
Provided by Secretary of State for Health
Monoline wrapped by Financial Security Assurance
Index-linked semi annually in line with RPI
Base coupon 1.79% pa
Tenor
– 35 years
– 15 month tail
Loan stock (£24.3m)
12.5% fixed coupon
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Non recourse to Equity
Debt funding is to Project Co
Secured on:
Concession with public sector
Payout on termination in certain cases
Security over:
– Project Co assets and contracts
– Project Co shares
Hence, funding is non-recourse to shareholders
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2020
Debt ratios
2.00
1.90
1.80
1.70
1.60
1.50
1.40
1.30
1.20
1.10
20
1
20 1
1
20 2
1
20 3
1
20 4
1
20 5
1
20 6
1
20 7
1
20 8
1
20 9
2
20 0
2
20 1
2
20 2
2
20 3
2
20 4
2
20 5
2
20 6
2
20 7
2
20 8
2
20 9
3
20 0
3
20 1
3
20 2
3
20 3
3
20 4
3
20 5
3
20 6
3
20 7
3
20 8
3
20 9
4
20 0
4
20 1
42
1.00
DSCR - Base case
Source: HSFML: Taken from the project’s financial model
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LLCR - Base case
DSCR Lockup
LLCR Lockup
DSCR – Debt Service Cover Ratio
LLCR – Loan Life Cover Ratio
2121
Key Equity risks
Performance deductions
when not passed on to subcontractors
Major Maintenance forecasts
Costs and timing – risk & opportunity
SPV costs, insurance & overheads
Accounting standards & tax changes
Inflation/deposit rates
Change in Law
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2222
Major maintenance
30.0
25.0
£m's
20.0
15.0
10.0
5.0
20
1
20 1
1
20 2
1
20 3
1
20 4
1
20 5
1
20 6
1
20 7
1
20 8
1
20 9
2
20 0
2
20 1
2
20 2
2
20 3
2
20 4
2
20 5
2
20 6
2
20 7
2
20 8
2
20 9
3
20 0
3
20 1
3
20 2
3
20 3
3
20 4
3
20 5
3
20 6
3
20 7
3
20 8
3
20 9
4
20 0
41
0.0
MRA Balance
Source: HSFML: Taken from the project’s financial model
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MM Expenditure
MM – Major Maintenance (Asset Renewal)
MMRA – Major Maintenance Reserve Account
2323
Insurance
Various policies cover:
Project company
Authority
Sub-contractors (and their sub-contractors)
Senior funders
Third parties
Risks insured:
Contractor’s all risk
Third-party liability
Delay in start-up
Property damage
Business interruption
Concession contract includes risk gain/pain-sharing with Authority
Five year reviews
Cost increase sharing:
First 100% increase: 100% Project Company risk
Thereafter: sharing 90% (Authority) / 10% (project company)
Cost decrease sharing:
First 25% decrease: 100% Project Company upside
25-50% decrease: 50% sharing
50%+ decrease: 90% Authority upside
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Cash deposits
45
Free Cash balance
Change of Law Reserve Account
Major Maintenance Reserve Account
Debt Service Reserve Account
40
35
£m's
30
25
20
15
10
5
40
20
38
20
36
20
34
20
32
20
30
20
28
20
26
20
24
20
22
20
20
20
18
20
16
20
14
20
12
20
20
10
0
Source: HSFML: Taken from the project’s financial model
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Forecast* shareholder cashflows
10.0
9.0
8.0
7.0
£m's
6.0
5.0
4.0
3.0
2.0
1.0
20
1
20 1
1
20 2
1
20 3
1
20 4
1
20 5
1
20 6
1
20 7
1
20 8
1
20 9
2
20 0
2
20 1
2
20 2
2
20 3
2
20 4
2
20 5
2
20 6
2
20 7
2
20 8
2
20 9
3
20 0
3
20 1
3
20 2
3
20 3
3
20 4
3
20 5
3
20 6
3
20 7
3
20 8
3
20 9
4
20 0
4
20 1
42
0.0
Sub debt interest
Sub debt principal
Dividends
*Prospective investors should note that no assurance or guarantee can be given that these cashflows will be achieved
Source: HSFML: Taken from the project’s financial model
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Rolling investment valuation*
60
50
£m's
40
30
20
10
0
11 012 013 014 015 016 017 018 019 020 021 022 023 024 025 026 027 028 029 030 031 032 033 034 035 036 037 038 039 040 041 042
0
2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2
*Assuming a constant discount rate. Prospective investors should note that no assurance or guarantee can be given that this valuation will be achieved
Source: HSFML: Taken from the project’s financial model
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Sensitivity analysis
FM Costs +/- 10%
Revenue Deduction 5%
throughout
Insurance +/- 50%
Lifecycle +/-10%
Corp. Tax Rates +/- 2%
Deposit Rates +/- 2%
Inflation +/- 1%
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
% Movement in Value
20%
30%
40%
Sensitivities are applied to all remaining years of the concession (ie RPI +1% is an increase in the RPI assumption for each remaining year of an additional 1% pa)
Deductions of 5% pa assumes these deductions are not passed down to sub-contractors.
Lifecycle is major maintenance (asset renewal) forecast spend
Source: HSFML: Taken from the project’s financial model
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HICL Asset Management
Dedicated team of three asset managers and portfolio director
Value preservation and enhancement
HICL takes an active role:
Regular board meetings
Liaison meetings with clients, project team and key
subcontractors
SPC management performance
Annual budgets and plans developed
Quarterly review of performance
Monitor sub-contractor credit worthiness
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Important information
HICL Infrastructure Company Limited ("HICL") and InfraRed Capital Partners Limited ("IRCP") have based this document on information obtained from sources they believe to be reliable but which has not been
independently verified. All charts and graphs are from publicly available sources or proprietary data. Except in the case of fraudulent misrepresentation, HICL & IRCP make no representation or warranty (express
or implied) of any nature or accept any responsibility or liability of any kind for the accuracy or sufficiency of any information, statement, assumption or projection in this document, or for any loss or damage
(whether direct, indirect, consequential or other) arising out of reliance upon this document. Any projection, forecast, estimate or other 'forward looking' statement in this document only illustrates hypothetical
performance under specified assumptions of events or conditions, described herein. Such projections, forecasts, estimates or other 'forward-looking' statements are not reliable indicators of future performance.
Although IRCP has analysed the project's performance based upon key assumptions, some relevant events or conditions may not have been considered.
Statements made in this document relating to HICL are intended as a summary and not a complete description and may be subject to change. The information is accurate as at the date on the front cover, unless
and only to the extent that the content within this presentation expressly states otherwise. HICL & IRCP are under no obligation to keep current the information contained in this document.
You are solely responsible for making your own independent appraisal of and investigations into the products, investments and transactions referred to in this document and you should not rely on any information
in this document as constituting investment advice. This document is not intended to provide and should not be relied upon for tax, legal or accounting advice, investment recommendations or other evaluation.
Prospective investors should consult their own tax, legal, accounting or other advisors. Prospective investors should not rely upon this document in making any investment decision.
Investments can fluctuate in value, and value and income may fall against an investor's interests. The level and bases of taxation can change. Changes in rates of exchanges and rates of interest may have an
adverse effect on the value or income of the investment. Figures included in this document may relate to past performance. Past performance is not a reliable indicator of future performance. Investments in the
products or investments referred to in this document entails a high degree of risk and is suitable only for sophisticated investors who fully understand and are capable of bearing the risks of such an investment,
including the risk of total loss of capital. It may also be difficult to obtain reliable information about the value of these investments, which will often have an inherent lack of liquidity and will not be readily realisable.
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The foregoing does not exclude or restrict any obligation that IRCP may have under the rules of the FSA, or any liability that it may incur under the rules of the FSA or the Financial Services and Markets Act 2000
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InfraRed Capital Partner Limited. Authorised and regulated by the Financial Services Authority. Registered in England No. 3364976. Registered Office 12 Charles II Street, London SW1Y 4Q
HICL Infrastructure Company Limited, 1 Le Truchot, St Peter Port, Guernsey. Registered Number: 44185
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