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 profile.
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 GBP5.6 million.
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