Schemes given shot at £300m NHS financing first

North Tees and Hartlepool foundation trust, which has just launched the procurement process for a new £298m hospital at Wynyard Park, has received two separate offers from funds keen to finance the deal.

If agreed, it would be the first time capital has been provided by pension funds on this scale in the health service, and would be unusual as the money is being offered without a government guarantee to underwrite the loan.

Although questions remain over the risks of pension funds proceeding without a deed of safeguard, the trust said preliminary soft market testing showed that it made little or no difference to the fund holders.

Despite this, the trust is sourcing funding pricing with and without a deed of safeguard.

Alan Foster, chief executive of North Tees and Hartlepool, said that banks in the past had wanted a deed of safeguard.

“The attraction is that pension funds are prepared to look at us as a risk like any other investment or long-term property deal that they wish to invest in,” he said.

“Banks are not lending at the moment. The PFI [private finance initiative] market has dried up in health and the Treasury is undertaking a review that hasn’t been announced yet.”

According to the trust, the unitary payments would be smaller than those for PFI agreements, and the effect of inflation on the payment would also be capped.

The trust has had its outline business case for the plans approved by its board, and a final decision will be made after feedback from the external regulator.

While it is expected that one fund will be chosen, the trust isn’t ruling out the option of hybrid funding schemes.

Rob Gardner, founder and co-chief executive of investment consultants Redington, said he had never heard of such a large arrangement in the NHS.

The UK needs more infrastructure, we need more hospitals, we need more schools and if something can be structured that means there’s capital to build them or to renovate them, and the pension funds get a healthy real rate of return in exchange, it has the potential to be a win-win.”

Gardner said it was “odd” that the money has been offered without a deed of safeguard, but added that the “devil would be in the detail” of the terms agreed.

Alan Rubenstein, chief executive of the Pension Protection Fund, welcomed the move by the NHS trust to specifically seek pension fund investment, but he said further information on whether this would form equity or debt would be needed.

Related articles:

NHS pensions admin deal up for grabs

Infrastructure makes in-roads

Be bold on greenfield, Treasury tells schemes