With the dearth of greenfield hospital PFI concessions, the John Radcliffe Hospital in Oxford comes as close to a pure newbuild as possible in the current climate. Joint sponsors Carillion and the Royal Bank of Scotland (50:50), were named preferred bidders on the contract to extend and rationalise select healthcare facilities in the city of Oxford. Another exception to the norm was the dual-tranche bank debt that surpassed by over a year the widely accepted 30-year limit for tenors.

The extension will comprise a children's ward and a head and neck trauma unit to be constructed by December 2006. Unusually, the 33-year concession involves only the extension, which will be annexed to the existing building by a corridor, and not refurbishment of the existing structure. More common with healthcare PFI projects, such as Portsmouth - on which a JV of Carillion and RBS is also the preferred bidder - is an element of newbuild combined with the refurbishment and reconfiguration of an old building. This is much more complex, involving whole life costing and the sponsor bearing the risk of the quality of the existing building.

In this regard Oxford was a straightforward deal; the joint venture, The Hospital Company, won the concession in December 2002 and closed financing in just under a year on 19 December 2003. Syndication of the £165 million ($300 million) financing closed 26 March 2004.

The Royal Bank of Scotland acted on the equity, advisory and also the debt side, as mandated lead arranger with DEPFA.

The bank debt is comprised of two tranches. Tranche A weighed in at £131 million, with a maturity of 29.5 years and was tightly priced across a standard amortisation schedule - all relatively normal. However, the £20 million tranche B, ranking pari passu with A, has a 31.5-year tenor that is non-amortising for the first 29.5 years with a four stage amortisation schedule over the remaining two years. Given the tenor, tranche B pays a premium over tranche A. The financing also includes a £13.28 million equity bridge and a £1 million standby facility. The debt to equity ratio begins at 92:8.

Richard Turner, commercial director at Carillion Private Finance, said: "The driver behind the dual-tranche route was simply its competitive edge: the bank debt was the lowest-cost bid."

There was a slight delay putting together the structure: from December 2002 through to the following spring RBS and DEPFA looked at the comparison between the capital markets and bank debt - but given the flexibility and aggressive pricing of the deal it was time seemingly well spent. Once negotiations between the sponsor and the Trust were over in August 2003, the MLAs were at financial close in less than four months. Equally speedy was the syndication process: opening at the end of January and closing at the March. Appetite for the £131 million tranche A was good, closing almost two times oversubscribed, with the nine co-arranging banks having their allotments pared down from around £20 million to between £10-12 million.

Tranche B was not as widely syndicated and taken up by RBS, DEPFA and Co-Op. Perhaps predicting that appetite would not be as strong, and because of the relatively small amount, tranche B was not actively marketed.

Turner said: "The financing went very well, it was the first major hospital scheme we've done for some time using bank debt completed on standard form three. It took slightly longer than we hoped, but we got there in the end."

Standard form three is the latest standardised form issue from the PFI unit at the Health Department, as part of the government's desire to quicken transaction times and ensure transparency of terms.

The scheme is the Oxford Radcliffe Hospitals NHS Trust's first PFI project and is part of its plan to relocate services from the ageing Radcliffe infirmary to the John Radcliffe Hospital. The Trust currently operates from four sites: The John Radcliffe and Churchill hospitals in Headington, the Radcliffe Infirmary in the city centre, and the Horton Hospital in Banbury.

Carillion also bid on a PFI scheme at Churchill Hospital, valued at around £70 million but, dashing hopes of an Oxford double, Impreglio was recently chosen as the preferred bidder. The scheme involves the construction of an oncology and radiology wing. Impregilo plans to reach financial close by the end of the year, and hopes to be on site by Christmas.

More positively, and again together with RBS, Carillion won as preferred bidder for Portsmouth hospital back in July 2003. RBS, which is also putting together the senior debt, hopes to reach financial close on the £220 million scheme by the fourth quarter, but with the concession involving the reconfiguration of the existing building and the Treasury's involvement in twin-tracking its piloted credit guarantee finance (CGF) scheme, the deal will struggle to go as smoothly as Oxford.

Interestingly, Portsmouth looks destined to go the capital markets route and highlights the fine balancing act of weighing price, flexibility, tenor and size of deal, when choosing either bonds or bank debt. But Oxford may whet the appetite of banks for longer-tenor loans.

The Hospital Company

(Oxford John Radcliffe) Ltd.

Status: Deal closed 19 December 2003, and syndicated 31 March 2004

Size: £165 million ($300 million)

Description: Financing for a children's unit and a head and neck trauma unit extension to the existing John Radcliffe Hospital.

Concession awarder:

Oxford Radcliffe Hospitals NHS Trust

Financial adviser to the trust: KPMG

Sponsors: Carillion Private Finance Ltd, Royal Bank of Scotland Investments Ltd.

Financial adviser to the sponsor: Royal Bank of Scotland

Mandated lead arrangers:

Royal Bank of Scotland; DEPFA

Co-arrangers: EIB, Dexia, Dresdner, ING, Lloyds TSB, SMBC, Mitsui, Bank of Ireland, Co-Op

Legal counsel to the trust: Herbert Smith

Legal counsel to sponsor: Linklaters

Legal counsel to lenders:

CMS Cameron McKenna

Design and construct contractors: Carillion Construction Ltd

Facilities management (hard/soft): Carillion Services Ltd