FINANCE: The University Hospital of South Manchester Foundation Trust has secured a £25m government loan to keep on top of its private finance initiative repayments, Department of Health papers have revealed.
The financially troubled trust has however been denied the further financial lifeline of a £32m working capital facility which the DH’s independent trust financing facility agreed that it needed.
According to papers from a ITFF meeting in May, DH officials had been unable to agree the terms of the 30-day facility with the Treasury.
South Manchester had applied for these two financial supports because it was struggling to cope with the “stepped profile” of repayments on a 35-year PFI deal which has two decades left to run.
This deal, which the trust signed in 1998, funded construction and maintenance of the acute block and mental health facility of Wythenshawe Hospital.
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Unlike later PFI schemes which have relatively “smooth” repayment structures, compensation under this deal will “spike” in the decade between 2012-13 and 2022-23, before dropping off over the final 10 years of the agreement.
The increased financial strain caused by this sudden and sustained increase led Monitor last month to take regulatory action against the trust in a bid to improve its financial performance.
According to the ITFF papers, which were released to HSJ under the Freedom of Information Act, the new loan would give the trust a “cash injection” to help cover its increased cash outflows over the next decade.
Under the terms of the loan, it will be repaid from 2023, when the PFI repayments are due to drop, thereby “smoothing the impact of the PFI payment profile”, the ITFF papers stated.
While the £25m loan was “the minimum requirement”, it might have to be “supplemented by additional funding” in the future, depending on the trust’s financial performance, they added.
The papers admitted that the trust will still face liquidity problems, despite the £25m loan as “amounts payable to current creditors” will remain “considerably in excess of cash”.
To mitigate such “short term cash pressures”, the ITFF said the “optimum proposal” would be to combine the loan with a 30-day working capital facility, equivalent to about £32m.
It had “not been possible to agree with Treasury, the terms on which working capital facilities might be provided”, they added.
The DH confirmed the loan had been agreed in principal.
A spokesperson for South Manchester said the £25m loan would help “address the pressure created by the trust’s PFI repayment profile and will allow us to stabilise our liquidity position”.
Independent Trust Financing Facility papers