The acute hospital PFI in Enniskillen in the south-west of Northern Ireland is the first project drawn from the province's ambitious healthcare PPP programme to achieve financial close.

The deal got away in the face of several difficulties, including local political opposition and an ever-diminishing debt market. The fact that the sole MLA for the project withdrew well into the preferred bidder stage only makes the relative speed with which close was reached even more impressive.

Part of Northern Ireland's proposed  12-project £2.4 billion healthcare PPP programme, the Enniskillen hospital [Projects Database] is the first in Europe to feature only single-bed rooms, greatly reducing the risk from MRSA.

The Background

The Enniskillen Acute Hospital will feature 350 beds and will ultimately replace the two existing acute hospitals currently run by the Sperrin Lakeland Health and Social Services Trust. They are the 127-bed Tyrone County Hospital in Omagh and the 211-bed Erne Hospital in Enniskillen.

The new facility will be located on a greenfield site north of Enniskillen. The value was estimated at between £220-250 million, a figure that was to increase to £270 million by the time of financial close in May 2009.

When the project first came to market in 2006, it was envisaged that a second smaller PFI hospital - the Omagh Enhanced Local - would follow soon after. It remains unclear whether this facility will still be procured through PFI.

Other parts of the planned Northern Ireland programme included the redevelopment of at least three acute hospitals. They were:

• £120m (US$220.3m) Altnagelvin Hospital Redevelopment
• £200-240m (US$370-444m) Ulster Hospital Redevelopment - OJEU PIN already released (IJ News, 5 May 2006)
• £320m (US$587.6m) Women and Children's Hospital Four

More projects were slated to follow in 2007, but it is yet to be seen which, if any, of these will be PFI hospitals and which will be traditionally procured. The Enniskillen scheme is seen as a pilot for the PFI route, but the much-changed political and economic climate may mean that none of its sister schemes follow its lead.

The Project

The procuring authority released a tender for the Enniskillen Hospital in June 2006. Three consortia were then shortlisted for the 30-year concession in January of the following year. They were:

• Consort Healthcare - John Graham and Balfour Beatty
• DirectHealth - Skanska and Innisfree
• Northern Ireland Health Group - FCC Construction; Interserve; P. Elliott & Co and Allied Irish Bank (AIB)

The competitive dialogue between the three teams continued for almost two years before a preferred bidder was announced.

The CD stage was extended beyond the expected timescale after EU procurement rules requiring detailed bids to be submitted prior to the preferred bidder stage came into force midway through the process. The rules saw bidding costs soar for the competing consortia.

Ultimately, the FCC/Interserve-led Northern Ireland Health Group was named preferred bidder in September 2008. The contract marks Spanish construction firm FCC's first foray into the UK PFI market.

The Financing

Taking into account the the deepening liquidity crisis that impacted on the banking community between the announcement of PB in September 2008 and the eventual close of Enniskillen eight months later, it took relatively little time for the deal to get away.

During the bidding process, the FCC/Interserve team had lined-up Bank of Scotland and HSBC as potential funders for a debt facility of up to £250 million. Bank of Scotland withdrew its interest before the consortium was named preferred bidder to concentrate its efforts on the Forth Valley Hospital PFI in Scotland, leaving HSBC as sole MLA on Enniskillen.

By the PB stage, the debt financing landscape had changed to the point where no lender was able to come in for a single ticket of the size that Enniskillen required, and so a club deal, to be arranged by HSBC, became the preferred option.

The burden on HSBC was eased by two factors. Primarily, the European Investment Bank (EIB) had in September announced that it would lend around £100 million to the project. Secondly, the provision for a £100 million capital contribution after the three-year construction phase, effectively wiping off 40 per cent of the total senior debt, made the deal much more bankable.

In effect, this meant that the total amount of long-term commercial debt required to see the deal away was reduced to less than £100 million, with the average loan life coming down to below 15 years.

However, when HSBC pulled out of the deal just before Christmas 2008 as part of a general retreat from UK PFI, the project looked to be in grave danger.

A funding competition ensued, with the sponsor looking to pull together a club of four banks, each with the capacity to lend a third of the debt on long-term tenors.

Some 15 commercial lenders were approached, with 11 ultimately expressing an interest. Of those 11, six were able to provide long-term debt before a club of four banks was formed in January 2009.

The banks were:

• Barclays
• Bank of Ireland (BoI)
• Helaba
• NordLB

Helaba was unable to remain in the deal, leaving the remaining three to supply around £48 million each on a 30-year tenor.

The debt was priced at an initial Libor +235bp during construction, and Libor +220bp, ratcheting up every 10 years to an eventual mark of Libor +250bp during the operation phase.

The capital contribution, paid three years in at the completion of the scheme's construction phase, will be spread between the commercial banks and the EIB on a pro rata basis.

On the equity side, the £13 million contribution was split among the consortium members as follows:

• FCC - 39 per cent
• Interserve - 31.5 per cent
• AIB - 24.5 per cent
• P. Elliott & Co - 5 per cent

Financial close was reached on 20 May 2009.

K&L Gates acted as legal adviser for the sponsor, Grant Thornton was financial adviser and Cyril Sweett provided technical advice.

For the authority, L'Estrange & Brett was legal adviser, with financial advice coming from Deloitte.

Arthur Cox and Allen & Overy provided legal advice to the lenders.

Conclusion

Given the problems and setbacks that assailed the deal, Enniskillen reached financial close with relative ease.

Several reasons can be pin-pointed for this. First, the co-operation and transparency between sponsor and authority during the funding competition made for fewer nasty surprises while the nuts and bolts of the deal were being hammered home.

Furthermore, the extended competitive dialogue phase meant that much of the minutiae of the project was already in place before the preferred bidder stage.

Finally, the early and significant involvement of the EIB, along with the sweetener that was the promised capital contribution, rendered this an attractive deal for the few banks that were capable of lending long-term in the current market.

However, what was intended to be a pilot for future Northern Irish health projects could end up being a lone star. The neighbouring Omagh scheme could now go down the D&B path, while the other projects ear-marked in the ambitious programme are still much further back in the pipeline.

The project at a glance