In the spring of 2003, a consortium led by Equion won preferred bidder status for the development of the Freeman Hospital and Royal Victoria Infirmary in Newcastle. The Royal Victoria Infirmary and Freeman Hospital is a typical example of a successful Private Finance Initiative (PFI) in the UK's health sector which has been a key innovation in public sector management in the United Kingdom. Under the PFI scheme, the private concessionaire, Healthcare Support (Newcastle) Finance, will provide the designing and construction of facilities, non-clinical services and maintenance required over a term of 38 years (8-year construction period plus a 30-year operation period); a fixed unitary payment will be paid by the Newcastle-upon-Tyne Hospital NHS Trust (grantor) to the concessionaire in exchange for the services throughout the concession term.
BUSINESS | CONSTRUCTION OBLIGATIONS | PRIVATE FUNDING | SERVICE DELIVERY | SOURCE OF REVENUE |
BUSINESS - New: The project involves a combination of building new facilities and refurbishing existing ones. However, the refurbishment area corresponds only to 6,700 (8%) squared meters compared to 76,300 (92%) square meters of new construction.
CONSTRUCTION OBLIGATIONS - Build: Capital expenditure requirements for the project are in their majority focused on the construction of new buildings/facilities. The transaction implies significant construction risks including cost overruns and completion delays which may affect the project's profitability.
PRIVATE FUNDING - Finance: The project uses a significant contribution from the consortium in the form of equity and a substantial debt portion (debt equity ratio is 92:8). There are diverse sources of financing including a bond issue by Royal Bank of Canada and EIB loan guaranteed by XL Capital Assurance.
SERVICE DELIVERY - Bulk: Healthcare Support (Newcastle) Finance, the project operator, is responsible for delivering services directly to the Trust (grantor). There are no customer service responsibilities or any specific social risks for the operator.
SOURCE OF REVENUE - Fee: The revenue stream for the project originates exclusively from the grantor (Newcastle-upon-Tyne Hospital NHS Trust) under a fixed-price unitary payment to the project company in exchange for the services provided throughout the concession term.