One of the biggest private sector lenders to NHS infrastructure projects is in discussions with the Department of Health over fears its investments are threatened by the abolition of primary care trusts, HSJ has learned.
Aviva, whose commercial finance arm is one of the biggest local improvement finance trust lenders, is concerned that investments which were previously Treasury-backed could be devalued by the government’s decision to scrap PCTs.
The firm has £650m worth of LIFT investments, along with around £50m in NHS private finance initiatives.
LIFT was set up to finance primary care and community facilities, by setting up LIFT companies owned by a mix of private investors, PCTs, and a government-owned company called Community Health Partnerships.
As with PFI, the investment is paid back through a long-term lease arrangement. With LIFT, the main tenants are PCTs, which typically hold an over-arching lease and sublet to community health providers or GPs.
PCT leases are ultimately Treasury-backed, meaning that investors have a guarantee that if the PCT went bust, its liabilities would be covered by another government organisation. Aviva argues that this covenant enabled them to lend to LIFT schemes at favourable rates.
The DH announced late last year that as PCTs will be abolished at the end of March 2013, their LIFT leases and LIFT company shareholdings will both pass to Community Health Partnerships. Aviva believes that although the firm is wholly owned by the health secretary, its liabilities are not covered by the Treasury, and is therefore concerned that this effectively downgrades their investments to the status of any other commercial property holding.
The lender is anxious to clarify what the covenant will be for existing LIFT properties, and also what the status will be of any future leases if any of the existing LIFT companies they invest in seek to build more.
The outcome of the discussions could affect the future investment in NHS building, as concerns have also been raised over the “Private Finance 2” scheme announced by ministers last year. Aviva is understood to want a guarantee that the Treasury will back PF2 leases.
HSJ understands that other investors have raised similar concerns with the DH about LIFT, and that the LIFT Council, which represents LIFT companies, is holding separate discussions with the DH to ensure its members are not disadvantaged by the transfer of PCT assets and liabilities to Community Health Partnerships.
An Aviva spokeswoman described the discussions with the DH as “amicable”, and added: “We hope to reach a solution that is acceptable to both parties and allows us to continue our 30-year long lending record in this market.
“Once we are clear on the covenant strength we will then be in a better position to assess this in relation to our lending terms.”