Fengate Capital, Carillion and EllisDon-led Hospital Infrastructure Partners closed the C$1.127 billion ($1.13 billion) Oakville Hospital concession in Ontario on 29 July. The deal is the province’s largest healthcare concession to date and marked, a new low in pricing for Canadian social infrastructure public private partnership (PPP) debt.

The 167,225 square-metre (1.8 million square feet) greenfield hospital project will house 457 beds in ambulatory care, inpatient, clinical diagnostic, and therapeutic services and support areas. The concessionaire is also responsible for building a 2,000-space car park next to the building. The hospital is located in Oakville, which is roughly 40km south-west of central Toronto on Lake Ontario.

Financing is split pari passu between a C$543.5 million long bond and a C$474 million short-term bank loan. The tranches were originally C$557.7 million and C$481.5 million, respectively, but shrank due to a lower than expected financing costs, according to DBRS. Scotia Capital underwrote the 34-year bonds that priced at 205bp over the equivalent Government of Canada (GoC) bonds. The issue was 2.5x oversubscribed. DBRS rated the bonds A and Standard & Poor’s rated them A-.

Participants in the deal initially expressed concerns that a spike in market pricing would affect debt costs following the C$1.371 billion issue for Innisfree, Dalkia, Laing O’Rourke and OHL’s Centre Hospitalier de l’Université de Montréal (CHUM) concession that closed on 9 June. The spread on the CHUM bonds was 315bp over GoC because of a more than eight-year construction phase and ratings of BBB and Baa2 from DBRS and Moody’s, respectively. No such increase emerged and the Oakville debt priced in line with the 210bp over GoC spread on Fengate and EllisDon’s C$411.6 million St. Joseph’s regional mental health hospital that closed in March. 

Bank of Tokyo Mitsubishi-UFJ, CIBC, Credit Agricole CIB, Dexia, NB Financial, Scotiabank and Sumitomo Mitsui Banking Corporation provided the four-year construction loan. Pricing was 150bp over CDOR – a new low for infrastructure bank spreads in Canada – with a 75bp commitment fee. The loan is extendable for up to 18 months after substantial completion and will be repaid with the proceeds of a C$587 million substantial completion payment from the grantor Halton Healthcare Services. The grantor will make monthly availability payments to the concessionaire for the 30-year operations period. Halton Healthcare will contribute C$184 million and the town of Oakville C$130 million towards the payments with the remainder coming from the province. The sponsors contributed C$110 million in equity.

The issue includes a true-up provision under which, in the event of a default before substantial completion, deposits into a true-up collateral account for bondholders will be accelerated ahead of repayment of bank debt. DBRS estimates an average debt service coverage ratio of 1.25x and Standard & Poor’s estimates average DSCR of 1.251x, excluding interest income.

The forthcoming roughly C$1.4 billion Humber River Regional Hospital concession may not be able to achieve as tight of a spread as Oakville. Numerous Canadian lenders say there is very little room for further tightening. This would end a trend of steadily lower pricing on long Canadian infrastructure debt since Plenary and Borealis Infrastructure’s C$535 million Niagara Hospital deal priced at roughly 400bp over CDOR in March 2009. Concerns over the financial health of European sovereigns and S&P’s downgrade of the US sovereign credit to AA+ are not expected to affect investor sentiment.

The grantors released the request for qualifications for the concession in November 2009. They released the request for proposals to shortlisted Community Health Consortium (Lend Lease, Acciona, Aecon, Dalkia and Investec), Health Infrastructure Partners, Plenary Health (Plenary and Innisfree with PCL, Johnson Controls and RBC Capital Markets) in May 2010. Fengate, Carillion and EllisDon’s consortium was selected preferred proponent in June.

An EllisDon (70%) and Carillion (30%) joint venture holds the C$975.7 million fixed-price, date-certain engineering, procurement and construction contract. The firms will provide corporate guarantees valued at 50% of the contract price and the joint venture has issued letters of credit equivalent to 10% of the work’s cost. Construction is scheduled to take 48 months and be completed by 31 July 2015. The EPC contractor has subcontracted electrical works to Univex and mechanical works to Geo A Kelson. A second Carillion (70%) and EllisDon (30%) joint venture holds the 30-year facilities management contract.

Scotia Capital was financial adviser and McMillan legal counsel to the sponsors. Altus was their technical adviser. McCarthy Tetrault was legal counsel to the grantors and Stikeman Elliott was counsel to the lenders.

Hospital Infrastructure Partners
Status: Closed 29 July 2011
Size: C$1.127 billion
Location: Oakville, Ontario
Description: 30-year DBFM concession for a new 457 bed hospital
Grantors: Halton Healthcare Services and Infrastructure Ontario
Sponsors: Fengate Capital (50%), Carillion (40%), EllisDon (10%)
Equity: C$110 million
Loans: C$474 million revolver
Lenders: Bank of Tokyo Mitsubishi-UFJ, CIBC, Credit Agricole CIB, Dexia, NB Financial, Scotiabank and Sumitomo Mitsui Banking Corporation
Bonds: C$543.5 million
Underwriter: Scotia Capital
Financial adviser: Scotia Capital (sponsors)
Legal counsel: McMillan (sponsors), McCarthy Tetrault (grantors), Stikeman Elliott (lenders)
Technical adviser: Altus (sponsors)
EPC contractor: EllisDon (70%) and Carillion (30%) joint venture
Facilities management provider: Carillion (70%) and EllisDon (30%) joint venture

Oakville Hospital project structure

Source: DBRS