NRoCK: Banking technology risk

With Eu255 million ($327.84 million) in debt backing the 25-year Kiel particle therapy PPP concession, Germany's biggest healthcare PPP to date reached financial close in March 2008. The deal is also notable for financing arguably one of the most technologically advanced healthcare projects ever.

"The main success of the deal was to secure a non-recourse financing at attractive rates for a new technology," says Roger Ernst, director at Siemens Project Ventures.

Particle therapy differs from conventional radiotherapy in that the treatment is far more selective by the use of protons or carbon ions. Particle therapy technology therefore permits the treatment of cancer in areas of the human body that are difficult to access or are located near sensitive organs and expands the possibilities of children's cancer therapy.

The North European Radio-oncological Centre project (NRoCK) had a difficult birth. Initially, there was a competition between the governments of the states of Hamburg and Schleswig-Holstein about where to locate the project. It was agreed that the project would go to University Hospital Schleswig-Holstein in Kiel on condition that the university presented a binding offer from bidders by 31 December 2006, otherwise the project would have gone to Hamburg. Since the prequalification documents were only published in April 2006, this was a very tight time schedule and imposed significant time pressure on the project throughout the bidding process.

Secondly, to raise sufficient income for NRoCK on a long-term basis, Kiel University had, at the same time, to establish cooperation contracts with the hospitals affiliate universities of Oslo, Kaunas, Odense, Rostock, Greifswald, Minden and Hannover.

The final submission by the bidding consortium was based on financing conditions from the early days of the financial markets crisis. With market conditions getting worse towards financial close, the sponsors had to make huge efforts to close the financing within the given affordability and time. They achieved this by increasing the bank club from two to four banks to reduce ticket sizes, and increased the margins.

Despite these measures the anticipated documentation bank left the club at a very late stage and the tasks had to be reassigned within a very short period of time. Eventually, funding was arranged by Depfa, DZ Bank, HSH Nordbank and SMBC; the debt comprised a Eu235 million long-term facility, a Eu11.5 million debt service reserve and a Eu7 million standby facility.

"The technology provider assumes the responsibility for certain risks under the construction contract as well as under the operation contract," says Dr. Peter Seifert director at Bilfinger Berger Project Investments "In general, such assumed responsibilities are reduced over the lifetime of the project as the new technology becomes proven technology."

Given the pace of technological advances and the length of the concession, project documentation allows for changes in technology if proposed by the public sector. Upon such a proposal an independent technical adviser will report to the banks, and if there is a significant increase in risk banks can reject the proposal, or the concession can be modified to allow the procurer to accept more risks.

Ernst adds that such a change is likely to be some way off: "Carbon treatment is already the next but one method of choice and we do not anticipate the short term availability of superior technology."

The project comprises the design, construction, financing, full non-clinical operation and maintenance of a particle therapy cancer treatment centre, where up to 3,000 patients will be treated a year.

The project will be built by a consortium comprising Bilfinger Berger AG and Siemens AG. The 46 month construction period (opening in 2012) is followed by a 25-year operating concession. Siemens AG Healthcare will provide particle therapy management services, with facility management services carried out by HSG Zander, a wholly owned Bilfinger Berger subsidiary.

The funding is backed by contractually fixed-price availability payments to the project company over the life of the concession.

Further therapy deals are not likely in the near future, because the Association of Health Insurers have a fear of too many hospitals without sustainable demand from patients, particularly in the north of the country. But on a mid-term basis, it is expected the market will ask for further particle or proton therapy centres. When it does, NRoCK will provide the template.

NRoCK – North European Radio-oncological Centre
Status: Financial close 18 March 2008
Description: Eu254.4 million debt for particle therapy centre PPP project at Kiel University
Sponsors: Siemens Project Ventures GmbH (50%); Bilfinger Berger Project Investments GmbH (50%)
Mandated lead arrangers: HSH Nordbank; Depfa; DZ Bank; SMBC
Sponsors' financial adviser: Deloitte (adviser and model); BDO (model review)
Government's financial adviser: PwC
Sponsors' legal counsel: Clifford Chance
Lenders' counsel: Norton Rose
EPC: Siemens/Bilfinger
Technical adviser: EC Harris
Insurance: Willis