‘One of lowest cost PPP deals ever’ scrapped in UK after Carillion fall

The $441m project had received debt commitments from LGIM, while the Pensions Infrastructure Platform invested in the site last year, both of which are expected to take hits.

A hospital PFI contract in the UK worth £335 million ($441 million; €374.8 million) has been terminated and brought into public ownership following the collapse of Carillion in January.

The demise of the construction company “created an unprecedented situation with numerous complex legal and commercial issues” for the Royal Liverpool Hospital, the Royal Liverpool and Broadgreen University Hospitals Trust said in a statement.

The PFI contract will now enter a “managed termination process” whereby the concession company will hand over its contracts for construction, supply chain and facilities management to the local NHS trust over the next few months so construction can be completed.

The project reached financial close in December 2013, when it was hailed as “one of the lowest cost public private deals ever” by Helen Jackson, director of strategy and redevelopment at the Royal Liverpool and Broadgreen University Hospitals Trust. She said the structure of the deal meant annual repayments would be £10 million less than initial projections.

The site received £89 million debt funding from Legal and General, £90.5 million from the European Investment Bank and a further £118 million from the Trust and the UK Department of Health. Carillion held 50 percent of the equity up until its collapse, while the Pensions Infrastructure Platform bought 50 percent last November from the Aberdeen UK Infrastructure Partners fund as part of a deal to buy stakes in 10 UK PPPs.

The deal by PIP was its single largest to date and had the backing of seven UK pension funds including Strathclyde, British Airways Pensions, Railpen and the West Midlands Pension Fund. It is understood this investment was exited in April and written off as worthless after Carillion’s fall, a source told Infrastructure Investor. PIP could not be reached for comment before press time.

The outcome of Legal and General’s investment remains subject to the “managed termination process”, although it’s understood the firm will take a hit on at least some of its investment. Legal and General was thanked by the Trust in a statement yesterday and continues to work on the outcome of the project. The group declined to comment.

Cladding failure

The project is expected to be taken forward by funds from the Trust and the UK government, although the bailout measures are yet to be confirmed. The termination process is set to begin on 30 September.

Significant improvements would have to be made to parts of the hospital already constructed by Carillion, which told the Trust before its liquidation that the cladding system had been installed to meet the required fire safety standards. However, this was found not to be the case with some parts of the cladding, according to the Trust, which has added complexity to the cost estimates for the site.