Hospital de Mostoles closed at a time of uncertainty in the financing market for PPP projects in Spain. That it could obtain 20-year commercial bank debt was an important milestone for the country’s healthcare sector, especially since the project entailed the financing of a hospital under a PPP structure, while also incorporating medical risk.

Under the PPP contract the risks attached to both the operations and maintenance of the building and the provision of medical services have to be allocated under a single concession agreement. By splitting the project into two different companies, ring-fencing the medical risk from the pure O&M, the sponsor was able to close the project without offering a full completion guarantee.

Explains Mario Mendez, director of project finance for Spain & Portugal at BNP Paribas: “In Spain, infrastructure concessions usually have full completion guarantees provided by the sponsor. In this case what we had is a sponsor who is a 100% hospital operator and this company was not willing to provide a full completion guarantee.”

“I think it [the final structure] was the most appropriate one as it mitigates the medical risk. The debt is paid exclusively from cash flows generated by the O&M company. It’s true the medical company must generate enough cash for the concession to perform, but we do not need the cash from the medical company to service the debt.”

The project pulled in two bids, one from Capio Sanidad, advised by BNP Paribas, and another from ACS, the large Spanish construction firm. The grantor then selected the former as preferred bidder for the project in April and in the negotiations that followed the sponsor sought to agree a structure with the Madrid government that would mitigate the medical risk, and create bank comfort, given the absence of a full completion guarantee.

Several banks apparently baulked at the original structure, which offered no sponsor guarantee for delay. The ring-fencing of medical risk, which gives the lenders the opportunity to replace the healthcare operator without triggering the termination of the concession, helped ease lender disquiet.

The final package also includes sponsor guarantee for delays of up to 6 months that are not linked to the performance of OHL, the engineering, procurement and construction contractor, with payments placed into an escrow account. Capio Sanidad will also contribute its equity upfront to mitigate banks concern over its ability to inject cash into the project in the future. Banks insisted on upfront equity because at the time the deal closed the sponsor’s owner was CVC Capital Partners, a private equity firm.

A club of three banks – BNP Paribas, La Caixa and Banco Popular Espanol – are providing Eu112 million ($146.5 million) in senior long-term debt. The debt breaks down into a Eu96 million project finance facility, which has a tenor of 20 years, and a Eu16 million revolving credit line, which has a tenor of construction plus six months.

BNP Paribas originally took the largest ticket but sold down a portion of debt to Instituto de Credito Oficial one month after close, which reduced its hold to a similar amount to the other banks. All of the banks provided the debt’s interest rate hedging, which took the form of the sale of a swaption to the project, and which mitigated the interest rate risk stemming from the 6-month lag between financial close and first drawdown.

Although the long-term debt has a nominal tenor of 20 years, the commercial banks have structured the project as a soft mini- perm through margin step-ups and a cash sweep. Banks felt that this was an important compromise because of the current lack of appetite in the market for long-term lending.

This soft mini-perm encourages a refinancing by year 8, with cash sweeps hitting 100% at this point. Margins on the debt start at around 300bp with step-ups at the beginning of operations and every 5 years after that, reaching around 400bp by year 20. The minimum debt service coverage ratio is 1.30x.

The gearing on the project is also fairly conservative. The sponsor is providing Eu32 million in equity to the O&M company under the base case, which gives the project a debt-to-equity ratio of about 70:30. However, the financing for the company responsible for providing specialised healthcare services is met through 100% sponsor equity, which gives the project a gearing closer to 60:40.

The project consists of a 30-year concession for the design, construction, operation and maintenance of a hospital in Mostoles, to the south-west of Madrid, in addition to the provision of both medical and auxiliary services.

The public administration will renumerate both companies separately. The company responsible for the operation of the hospital will be paid a monthly fixed payment for the availability of the building. This is inflation-indexed but the escalation is capped at 80% to encourage the project company to control costs. The company responsible for the provision of healthcare services will be remunerated under a capitation model, under which the administration will pay an annual payment per registered inhabitant in the area.

Capio Móstoles Servicios Residenciales SA
STATUS: Financial close 27 January
DESCRIPTION: 30-year concession for the design, construction, operation and maintenance of the Móstoles Hospital located in the Region of Madrid, and the provision of both medical and auxiliary services.
SIZE: Eu128 million
GRANTOR: Community of Madrid
SPONSOR: Capio Sanidad
MLAS: BNP Paribas, La Caixa, Banco Popular Espanol
OTHER LENDERS: Instituto de Credito Oficial
SPONSOR’S FINANCIAL ADVISER: BNP Paribas
SPONSOR’S LEGAL ADVISER: Linklaters
LENDERS’ LEGAL ADVISER: J&A Garrigues
LENDERS’ TECHNICAL ADVISER: ARUP
LENDERS’ INSURANCE ADVISER: Marsh
LENDERS’ MEDICAL ADVISER: Mensor
LENDERS’ POPULATION ADVISER: Diadro