Jan 22 -
Summary analysis -- NewHospitals (St. Helens and Knowsley) Finance 22-Jan-2013
CREDIT RATING: None. Please see issue list. Country: United Kingdom
Primary SIC: Special Purpose
The GBP178.3 million index-linked guaranteed secured bonds (including GBP25.3
million of index-linked variation bonds) issued by U.K.-based special-purpose
vehicle NewHospitals (St. Helens and Knowsley) Finance PLC (the Issuer) and
the GBP149.2 million index-linked guaranteed senior secured EIB loan have
insured ratings of 'AA-'. The insured ratings reflect the unconditional and
irrevocable payment guarantee of scheduled interest and principal provided by
Assured Guaranty (Europe) Ltd. (AA-/Stable/--). Standard & Poor's underlying
rating (SPUR) on the bonds and the loan is 'BBB-', reflecting a composite of
credit factors outlined below.
The 'BBB-' underlying rating takes into account Standard & Poor's Ratings
Services' view of the following credit risks:
-- The service providers, Medirest (not rated) and Taylor Woodrow
Facilities Management (TWFM; not rated), have a relatively short track record
of full service provision to date, having switched from the interim services
scheme in 2010, although performance has been good so far.
-- The project is exposed to the uncertainty of more than 30 years of
capital replacement. However, the capital-replacement risk is partially
mitigated by a three-year, forward-looking life cycle reserve and a 12-year
guarantee from TWFM for serious latent defects.
-- The project has an aggressive financial structure, which is typical of
the PFI sector. Senior debt to total funds is 91.11%, and the minimum and
average base-case senior debt service coverage ratios are 1.17x and 1.24x,
respectively. These figures are relatively weak, in our view, but in line with
those of other U.K. PFI projects.
-- The project appears to demonstrate a greater sensitivity to our
standard stress and breakeven scenario assumptions than other projects of this
type. This is indicative, in our view, of a less-robust forecast financial
These risks are offset, in our opinion, by the following credit strengths:
-- The revenue stream is based on availability, with little volume or
market exposure; negligible reliance on third-party revenues; and a payment
mechanism that the lenders' independent technical adviser (TA), Mouchel
Management Consulting Ltd., deems consistent with similar projects. ProjectCo
began receiving 100% of the full unitary payment in September 2012.
-- The credit quality of the Issuer's main revenue source--the
Trust--does not constrain the underlying project rating.
-- Soft and hard facilities management (FM) services, under a fully
ring-fenced interim service contract, were provided for the existing estate by
Medirest and TWFM throughout the construction phase. No significant issues
arose, service failure points and deductions were minimal, and were fully
passed through to the service providers.
-- Construction is now complete, with only a few comparatively minor
defects still to be fully rectified; these are scheduled to be finished soon.
In addition, the rationale for the project is strong and supported by what we
see as likely high long-term demand for health care services in the local area.
For full details of the transaction, see "Postsale: NewHospitals (St. Helens
and Knowsley) Finance PLC," published Aug. 10, 2006, on RatingsDirect on the
Global Credit Portal.
The project benefits from a six-month debt service reserve of GBP8.7 million, a
three-year maintenance reserve of GBP4.5 million, and a change-in-law reserve of
The stable outlook on the SPURs reflects our view that the project will
continue to deliver a stable operational and financial performance.
We could lower the SPURs if the project's operational performance were to
weaken significantly, resulting in a substantial increase in
performance-related deductions or the issue of a warning notice by the Trust,
for example. We could also take such an action if there were any decline in
the project's financial or liquidity profile, which could arise following the
introduction of a "Spens" clause into the terms of the shareholder loan and
the subsequent distribution of funds to shareholders.
Although we consider the likelihood of a positive rating action on the SPURs
to be more limited, a material improvement in the project's financial profile
could result in such a move.
The outlook on the monoline-insured debt rating reflects that on AGE and will
move in line with that rating.
Related Criteria And Research
All articles listed below are available on RatingsDirect on the Global Credit
Portal, unless otherwise stated.
-- Project Finance Construction and Operations Counterparty Methodology,
Dec. 20, 2011
-- Updated Project Finance Summary Debt Rating Criteria, Sept. 18, 2007