Written evidence from Innisfree
WYTHENSHAWE HOSPITAL
The Wythenshawe Hospital PFI transaction was financed
by Bank Debt of £79.4 million and shareholder investment
of £6.9 million which was used to finance the construction
and development cost of £83.4 million (of which the construction
cost was £64.6 million, design and fees of £6.2 million
and interest and finance costs built up during construction of
£12.6 million) and funding reserves required by the Lenders.
The bank debt will be fully repaid by 2023 after which the annual
Trust PFI payment reduces.
Set out below is a table produced from the 12 August
1998 Financial Close model for the South Manchester Hospital PFI
deal. The Trust PFI payments are linked to RPI (All Items) which
was assumed to be 3% throughout the concession life (to 11 August
2033). The net present values shown use a discount rate of 6%
with cashflows discounted to the date of signing of the concession
agreement.
| £ million over concession life
| Nominal payments/
expenditure |
as a percentage of Trust PFI payment |
NPV of payments/
expenditure | as a percentage of Trust PFI payment
|
| Trust PFI payment | 892 |
| 342 | |
| | |
| | |
| Used to pay for the following services which would otherwise have been paid for directly by the Trust..
|
| Soft services | 403 | 45%
| 147 | 42% |
| Maintenance | 169 | 19%
| 63 | 18% |
| Insurance and management costs | 33
| 4% | 12 | 4%
|
| Sub-Total | 605
| 68% | 222 |
64% |
| | |
| | |
| ..with the remainder of the payment to fund the financing..
|
| Senior Debt | 160 | 17%
| 81 | 23% |
| Interest received on deposits | (11)
| -1% | -4 | -1%
|
| Equity Return | 87 | 10%
| 28 | 9% |
| Sub-total | 236
| 26% | 105 |
31% |
| | |
| | |
| …and tax |
| Tax | 51 | 6%
| 15 | 5% |
The total development cost of the hospital of £83 million
should be compared to the £105 million discounted cost of
the financing, a 1.25 times multiple, rather than the £892
million of nominal payments the Trust will make which includes
payments for services. Using a 6% discount rate the return
to equity over a 35 year concession period gives a four times
multiple (invest seven, return 28) or a simple 8.5% return each
year earned over 35 years.
In 2010 the Trust PFI payment was £28.9 million, under 9%
of total Trust Revenues. Soft services and Hard FM are regularly
value tested with 100% of the savings being passed through to
the Trust. No margin is charged by the PFI Company on soft or
hard FM services. Lifecycle replacement is a PFI Company risk.
The PFI Company (South Manchester Healthcare Limited) is a UK
company subject to UK tax.
Ignoring the time value of money can lead to misleading figures.
For example on an undiscounted basis the "cost" of a
£100 million 30 year 5% gilt is £250 million.
June 2011
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