European Infrastructure Finance Yearbook - Investing In Bonds ...
European Infrastructure Finance Yearbook - Investing In Bonds ...
European Infrastructure Finance Yearbook - Investing In Bonds ...
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(Multiplex FM) has signed in the U.K.<br />
Multiplex FM has some health experience<br />
but on a smaller scale and with shorter<br />
contracts. It provides FM services to several<br />
hospitals in Australia totaling 2,100 beds-this<br />
PFI project alone provides 780 beds.<br />
The Australian contracts have an average<br />
duration of 10 years, significantly lower<br />
than for this project. The technical adviser<br />
has reviewed Multiplex FM’s processes and<br />
procedures and considers them satisfactory.<br />
• Unlike most rated PFI projects to date, the<br />
project makes use of a liquidity facility and<br />
CiLF instead of cash reserve accounts. The<br />
facilities have minimal drawstops and<br />
should provide relatively timely liquidity to<br />
the project if required.<br />
• The project is highly leveraged (94%) and<br />
the structure is quite aggressive with no tail.<br />
<strong>In</strong> lieu of a tail, a cash reserve is built up by<br />
the start of the last year of the concession,<br />
assuming sufficient cash is available.<br />
• ProjectCo is exposed to increased labor costs<br />
beyond those budgeted for, and for which it<br />
cannot claim relief from the Trusts through<br />
the market testing process.<br />
• The project is exposed to the uncertainty of<br />
more than 35 years of capital-replacement<br />
costs.<br />
• The contractor is dependent on key<br />
personnel. Given its lack of experience in the<br />
U.K., Multiplex Construction (UK) has had<br />
to recruit a new construction team<br />
specifically for this project. As this<br />
experience is vested within individuals,<br />
rather than the organization, Multiplex<br />
could be exposed if it failed to retain the<br />
services of these personnel, as it would need<br />
to recruit externally, and therefore may not<br />
be able to rapidly transfer staff internally if<br />
necessary.<br />
The following strengths mitigate these risks at<br />
the preliminary ‘BBB-’ rating level:<br />
• Construction risk is partially mitigated by an<br />
18% (£60 million) LOC provided by ABN<br />
AMRO, which would be sufficient to fund<br />
construction delays of 12 months and<br />
replacement cost premiums of about<br />
15% or more through the whole<br />
construction period.<br />
STANDARD & POOR’S EUROPEAN INFRASTRUCTURE FINANCE YEARBOOK<br />
PROJECT FINANCE/PUBLIC-PRIVATE PARTNERSHIPS<br />
• An LOC equivalent to about 20% of the<br />
annual hard FM fee and a cash reserve<br />
equivalent to about 20% of the annual hard<br />
FM fee (replaceable by an additional LOC<br />
for the same amount) by the planned<br />
commencement of full services provides<br />
third-party liquidity support for the hard<br />
FM services. This liquidity can only be<br />
removed once Multiplex FM has met<br />
specific performance and financial targets<br />
consistently over a three-year period.<br />
• There are alternative hard FM providers<br />
capable of undertaking the services if<br />
Multiplex FM is replaced.<br />
• A 24-month longstop date is included for<br />
the acute facility. This is significantly longer<br />
than for similar hospital projects (usually<br />
12-18 months). The building contract<br />
longstop is 12 months, which gives<br />
ProjectCo a minimum 12 months to appoint<br />
a replacement contractor if necessary.<br />
• The Trusts have invested significant<br />
resources in assessing the design and<br />
working with Multiplex to develop and<br />
verify the details. <strong>In</strong> particular, all 1:50 scale<br />
drawings have been signed off by clinical<br />
user groups before financial close.<br />
• The construction works, although large, are<br />
relatively simple, with limited decanting and<br />
phasing requirements. A large part of the<br />
Acute and MHU hospital works are on a<br />
greenfield site next to the existing hospital.<br />
• Capital-replacement risk is partially<br />
mitigated by a three-year, forward-looking<br />
lifecycle reserve, and a 12-year guarantee<br />
from the construction contractor for latent<br />
defects. Sensitivity testing also indicates that<br />
ProjectCo could withstand significant<br />
increases in lifecycle costs before<br />
encountering financial distress.<br />
• Multiplex’s construction liability is limited<br />
only on termination to 55% of the<br />
construction contract sum. Termination<br />
liability steps down to 40% on completion<br />
of the Acute facility and to 20% six years<br />
after practical completion. <strong>In</strong> addition, the<br />
liquidated damages cap is sized to enable<br />
damages to be paid until the PA longstop<br />
date of 24 months from programmed<br />
completion. This is 60% of the expected<br />
construction period.<br />
NOVEMBER 2007 ■ 139