Healthcare brought into the digital realm

Rueben Devlin and Mike Marasco explain to World Finance how the Humber River Hospital, which is currently under construction, will be the first fully digital hospital in North America.

Originating in Toronto, Canada, the project is CEO Rueben Devlin and COO Barb Collins’ vision of the hospital, having spent the better part of a decade bringing it to life. Humber River Hospital is North America’s first lean, green and fully digital hospital. “The vision was to embrace efficiency in the design and leverage the best possible technology to put some of the humanity back in healthcare”, says Dr Devlin. “We have managed to create a facility that will enable care providers to spend more time at the bedside, nurturing the personal interactions that form the basis of great hospital care.”

The new hospital is designed to serve the needs of the growing community for decades to come. It encompasses a 14-story tower, a separate central utility plant, 2,000 parking spaces in two structures and some additional surface parking. The new facility, which will be approximately 1.8 million square feet, will operate 656 beds in 2015 to 2016, with the capacity to expand to 688 beds by 2025. Construction is underway and scheduled to take approximately three years.

STAGES OF COMPLETION

The hospital selected a Public Private Partnership (P3) approach for the new facility to gain the benefits of a competitive process that would yield a unique design solution from each of the three bidders. Plenary Health Care Partnerships, a consortium of Plenary Group – with HCP Social Infrastructure – Innisfree, PCL Constructors Canada and Johnson Controls (JCl), were selected to deliver the new Humber River Regional Hospital.

In their winning design, the succinct approach to planning led to the use of on-stage/off-stage areas inside the facility. On-stage areas are meant for the public, while the off-stage areas are designed solely for staff and physician use. The new hospital was designed to inextricably link healthcare and the environment together.

Humber required that the design and construction adhere to the guidelines and sustainability principles of the Leadership in Energy and Environmental Design (LEED) rating system, with a goal of achieving LEED Silver certification. When complete, it will be the most energy-efficient hospital in North America. Therefore, as the first fully digital hospital in North America, it has been designed to support the latest medical technology in a completely new digital environment. In addition to the construction of the new facility, key risks associated with the maintenance responsibility of the hospital over the 30-year service period have been transferred to the private sector.

MAINTAINING FINANCES

The total cost of the contract is $1.75bn (NPV). The first payment will be made at substantial completion, in the amount of $611m.

This payment will be followed by monthly service payments over a 30-year period for construction of the facility, building maintenance, lifecycle repair and project financing.

The project achieved great value by leveraging attractive bond market pricing through the use of all bond-financing solutions. This project incorporated a short bond, paid out at substantial completion, as well as a long amortising bond and a long bullet bond. The bullet bond structure is a Canadian P3 market first, that has yet to be matched in Canada.

ASSERTING RISK FACTORS

Combining the amortising bond with the bullet bond helped produce the lowest average long-term P3 bond coupons since the financial crisis and 100 percent of the savings were passed through to the client. From the financing of this project, savings of approximately $50m were achieved for the hospital. The bullet bond structure reduced long-term debt costs for the project, while the spread and base rate movement between bid stage and financial close generated significant savings. An independent, third-party check of the SPV’s risk was completed by S&P and DBRS, who determined it was at an A level rate. This strong credit rating is not often assigned to P3 projects, which denotes the robust structure of the deal.

REDUCING RISK

From a finance perspective, ring fencing the SPV is of the utmost importance to determine the risk profile of the deal. The SPV was established as a bankruptcy remote single purpose entity, with non-recourse debt to the equity partners. The sub-contracts developed for the project substantially pass down all of the SPV’s obligations to PCL Constructors Canada and JCl, who will perform all of the construction and capital replacement roles.

The drop down obligations of both PCL and JCI are supported by performance security.

The strength and experience of PCL and JCI as contractor and facilities operator respectively, supports the stability of cash flow to the SPV over the term of the concession period. This low-risk approach has been evaluated and rewarded by lenders as each recognises the few scenarios where a performance failure exists that has not been subcontracted to one of these parties, supported by liquid and other performance security.

For more information: www.hrrh.ca

Source: World Finance