The A$630 million Bendigo Hospital PPP in Victoria, Australia, is not the first, nor the largest, hospital PPP in the country. But the Victorian Industry Participation Policy named it a strategic project and it was the first financing to close after the state released a new infrastructure plan called “Future Directions for Public Private Partnerships”. Bendigo involves the construction of an acute inpatient hospital, a mental health inpatient facility and an integrated cancer centre on the site of the existing Bendigo Hospital.

Stella NBH Finance Pty Ltd

Status

Closed 29 May 2013

Size

A$630 million

Description

Construction of new hospital facilities in Victoria, Australia

Grantor

Victoria Department of Health

Sponsors

Siemens Project Ventures (50%) and

Lend Lease Infrastructure Investments (50%)

Debt

A$805 million

Mandated lead arrangers

ANZ, National Australia Bank, Siemens Financial Services, Mizuho, CIBC, DBS Bank, Scotiabank, and BOS

EPC Contractors

Lend Lease

Financial adviser to the authority

KPMG

Legal adviser to the authority

Clayton Utz

Technical adviser to the authority

Davis Langdon

Financial adviser to the sponsor

Capella Capital

Legal adviser to the sponsors

Herbert Smith Freehills

Legal adviser to the lenders

Gilbert & Tobin

Facilities management

Spotless

Insurance adviser

JLT

Technical adviser to the lenders

Evans & Peck

Tax adviser

Greenwood Freehills

The project received a guarantee from the state government that it would refinance 75% of the debt post-construction. This promise helped the project sponsors – Siemens and Lend Lease – achieve very favourable gearing.

After some initial delays to the procurement process the project reached financial close in May 2013. The financing closed soon after the state named Siemens and Lend Lease’s Exemplar consortium the preferred bidder for the construction plus 25-year design, construction, financing and maintenance concesion for the project.

The project company signed A$805 million ($804 million) of debt with a group of eight lenders; ANZ, National Australia Bank, Siemens Financial Services, Mizuho, CIBC, DBS Bank, Scotiabank, and Lloyd’s BOSI. Siemens and Lend Lease will provide 50% each of the project’s A$110 million equity requirement.

The debt package breaks down into four term loans. The construction facility – A$565 million – has a five-year tenor. DBS Bank and BOSI were the biggest lenders on this loan. Three other facilities (of A$200 million and A$30 million) and a A$10 million six-year debt service reserve letter of credit, remain in place after the state contribution pays down the construction loan, have a tenor of six years and come from NAB, ANZ, Mizuho and CIBC.

Once the project is complete the state government will pay down 75% of the debt, which reduces the size of the availability payments it pays to the project company. After six years the project company will refinance the remainder of the debt in the bank market. The split between different tenors allowed the sponsors to allocate more of the debt to banks that were able to fund at shorter tenors more competitively.

The state named the Exemplar consortium preferred bidder in April 2013 – almost nine months later than it had originally planned. The project suffered delays early in the procurement process when Victoria excluded Lend Lease from its tender list in December 2012, which delayed the appointment of a preferred bidder.

Lend Lease had signed a union-friendly deal with the Construction, Forestry, Mining and Energy Union in September 2012. The agreement, which it signed after Lend Lease workers went on strike, included an employment security clause, 5% pay rises, and a bonus scheme.

This agreement contravened rules that the state had introduced in July 2012. The union challenged the exclusion of Lend Lease in the federal court but Lend Lease eventually kept hold of its preferred bidder status on the basis that the tender process for the hospital had started before the state guidelines came into effect.

The hospital expansion project also includes a separate but associated accommodation facility at the site. The accommodation project benefits from a 30-year lease and has an estimated value of A$20 million. No debt was involved, as its sponsor, HRL Morrison, provided all of the funding as equity. The project also includes a hotel, staff gym, childcare centre, grocery store, conference centre and retail developments, all of which are part of the development agreement with the state. The hospital is scheduled to enter operations in early 2017.