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Tuesday 24 June 2014 by Company updates

Royal Women’s Hospital update

THIS CONTENT IS SUITABLE FOR WHOLESALE INVESTORS ONLY

We have updated our research on the Royal Women's Hospital project (RWH) in Adelaide to include analysis of the credit implications of RWH's need to refinance its fixed rate bonds before 2021

Summary

RWH has a debt structure initially comprising approximately 50% nominal bullet bonds and 50% Indexed Annuity Bonds (IAB)
The $148m nominal bullet bond is callable in 2017 and has a final maturity in 2021 and will need to be refinanced sometime between 2017 to 2021
The $145m IAB is a 'door-to-door' facility with a final maturity at the end of the concession in 2033 and does not need refinancing. However, the IABs are still exposed to refinancing risk of the nominal bonds, because the project relies on the nominal bonds being successfully refinanced to avoid default
RWH has a fairly unique (and complex) financing structure for a PPP executed prior to the GFC for the combination of reasons listed below:

A mix of nominal bullet bonds and amortising IABs
Bullet refinancing required midway through the concession
A four year window to achieve refinancing (2017 to 2021) and an equity lockup mechanism in place during this period to incentivise the project owners to refinance
A forward starting swap in 2017 with the banks having the right to break the swap upon refinancing of the nominal bonds

The key challenge for the project owners will be to refinance the nominal bullet bonds between 2017 and 2021. This is reflected in the downgrade of RWH by Moody’s post GFC and the continuing negative outlook in the absence of a committed refinancing plan from RWH to deal with the nominal bonds
FIIG’s research report analyses the refinancing risk associated with RWH, and the potential scenarios which could play out for the project and bondholders
The nominal and IAB RWH bonds are available to wholesale investors only in minimum parcel sizes of $500,000 (face value)
The nominal bonds and are currently offered at a yield of 7.30% to call and 6.27% to maturity and the less liquid IAB has historically traded at a real yield of around 5.00%
Wholesale Client of FIIG? Download the update Royal Women’s Hospital – credit implications of refinancing on the FIIG website

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