With land ownership at the heart of last-ditch negotiations on the co-location of the new National Maternity Hospital on St Vincent’s Healthcare Group (SVHG)’s campus, the charges granted over the property are all-important. So are the conditions of the debt secured through these charges, which The Currency has established need a new solution this year after being eased temporarily as a result of financial challenges faced by the hospital during the pandemic. 

As reported last week, all the changes to the control and governance structure of St Vincent’s sought by the Government have now been implemented, but SVHG insists on retaining freehold ownership of the land under the new maternity building and leasing it to the state for 299 years.

Asked about the conditions attached to the lease on RTÉ’s Morning Ireland on Tuesday, Pat McCann, deputy chair of the existing National Maternity Hospital, said: “The covenants themselves are quite simple and, you know, if I was in Vincent’s I would be doing exactly the same thing to make sure that the integrity of the campus is maintained and that is exactly what they’re trying to do. This is not onerous obligations on anybody.”

McCann effectively chairs the current Holles St-based hospital because the chair position, formally reserved for the archbishop of Dublin under the National Maternity Hospital’s internal rules, is de facto no longer in use. As the founder and former chief executive of Dalata Hotels, he has deep experience of corporate property management.

“Not monetary in nature”

This is not the first time we hear language around the integrity of the Elm Park campus. It was clearly laid out as a red line by SVHG chair James Menton in a letter to the Department of Health on May 29, 2017. Both sides were negotiating the implementation of recommendations made by mediator Kieran Mulvey in his November 2016 report. At the time, Menton was advocating for SVHG to own the entire “facility” – not only the land but also the state-funded new maternity building, with strict obligations for SVHG to use it as a public hospital. This is a core extract from his argument at the time (the full correspondence is available on SVHG’s website): 

“Core principles in the agreement brokered by Kieran Mulvey were that the entire campus would come under single ownership, with an integrated system of operational and medical governance to enable the provision of seamless, safe and effective care services to patients.

“This has no connection with ownership or return on assets but rather it guarantees the highest quality services for all patients in all hospitals on campus. From the outset, we knew that any separation of ownership or governance would disrupt the seamless care pathways that are planned for all patients on the enlarged campus, which would lead to concerns over responsibilities and liabilities in each hospital, separation of care teams by hospital, and the use of transfer protocols that could cause restrictions and delays on physical movement of patients between hospitals, with increased risk to patients. 

“For this reason, any concerns we hold over ‘ownership’ are not monetary in nature, but rather they are concerns about the operation of a safe, integrated system of governance and medical protocols. This is why SVHG cannot countenance any sale or lease of part of the land on site, or any separate ownership of a hospital on site.”

This week, a spokeswoman for SVHG presented similar arguments when contacted by The Currency:

“Two landowners would make it very difficult, if not impossible, to manage the site and would also present significant risks to patient care. 

“Floors in the new building, apart from being physically integrated with St Vincent’s University Hospital (SVUH)  will have both National Maternity Hospital (NMH) and SVUH clinical and non-clinical facilities. Thus integrated patient care can only be provided safely under the proposed integrated ownership and bespoke governance structure. In terms of clinical governance, and if there is dual ownership, when patients are moved between the hospital buildings for treatment and care, at what point on the corridor between the NMH and the SVUH  does the patient transfer from the care of one hospital to the care of another?  Clinicians must be able to move their patients seamlessly between the hospital buildings in order to ensure they receive the urgent and specialist care they need without any delay or unnecessary bureaucracy.

“In addition there are key shared services on this site which are provided via single integrated systems, including buildings and utilities such as heat, power, light, essential piped gases which are vital for patient areas (wards, ICU, HDU, Theatre, Day Care, Diagnostics/Radiology & Laboratories). The service corridors for the whole SVHG campus run through the NMH Building. If this land was owned by a non-SVHG  entity it would be very difficult to ensure the availability of these services, which are critical to the effective and efficient delivery of maternity and non-maternity clinical patient care on the campus. The new development will include enhanced facilities for shared services including, among others, centralised kitchen facilities centralised purchasing/stores; building services and waste management facilities for the overall campus.”

In the five years since Menton’s letter, negotiations have resulted in agreement for the HSE to own the new building on land owned and leased out by SVHG. The new company National Maternity Hospital at Elm Park DAC, owned by SVHG save for a golden share ensuring oversight by the Minister for Health, seems to have alleviated Menton’s initial concerns over disjointed governance. Meanwhile, the licence agreed for joint use of the building will sort out practical issues such as who is responsible for what happens in each room or corridor.

Why, then, does SVHG still insist on retaining ownership of the underlying land? Back in 2017, Menton conflated the arguments that this was “not monetary in nature” and had “no connection with… return on assets”.

These, however, are two very different statements. A charity, such as the new St Vincent’s Holdings CLG that has now taken over SVHG, may not seek to return a profit from its assets – it doesn’t mean it is not concerned with their monetary value, or can function without money.

Land keeps SVHG’s balance sheet together

Of €570 million in fixed assets on SVHG’s balance sheet at the end of 2020, €220 million was land. This was overwhelmingly comprised of the Elm Park campus, based on a December 2017 valuation. It is almost certainly worth more today. The land value of the campus was more or less equivalent to the entire €204 million in equity shareholders’ funds in the group.

There is no question of realising this value by selling the site any time soon. Still, until that happens in the distant future, land is the key asset against which SVHG can borrow to fund its development. In fact, the property, including the site on which the new maternity hospital is to be built, is currently mortgaged – a fact that is publicly documented and acknowledged in the documents released this month by the HSE in preparation for the new National Maternity Hospital agreement, but inexplicably absent from the overall co-location debate.

As detailed last year, SVHG offered its land as collateral when it borrowed to redevelop St Vincent’s Private Hospital in 2010. This was detailed in a subsequent report by the Comptroller and Auditor General. To this day, the group and its property financing subsidiary Dubki Ltd carry corresponding charges in favour of Bank of Ireland and 19 unnamed investors under a tax incentive scheme.

The charges include a negative pledge not to dispose of the assets. Put simply, if SVHG gave the land under the new maternity hospital to the state, it would find itself in default of its loans and may become insolvent.

At the end of 2020, SVHG had €150 million in debt, of which the single largest loan was a €118 million liability for the financing of the private hospital.

The group disclosed in its latest accounts for that year:

“The private hospital financing liability and bank loans relating to the private hospital are secured by Bank of Ireland by a first priority mortgage over the investors’ interest in the new private hospital together with fixed and floating charges over certain assets of St Vincent Healthcare Group DAC.”

Separate Ulster Bank debt is secured on a car parking subsidiary of SVHG, Pianora Ltd.

Corporate debt always comes with conditions, such as the levels of indebtedness and solvency a borrower must maintain. SVHG is tied to Bank of Ireland by such covenants (unrelated to the lease covenants mentioned by McCann earlier). The group spokeswoman declined to disclose their terms and told The Currency: “The particular debt covenants which apply to SVHG’s loans are confidential. We note that they are typical of the covenants which would apply to such a loan.”

“SVHG’s bankers, Bank of Ireland, have agreed the extension of debt covenant waivers into 2022.”

SVHG spokeswoman

What we know is that the impact of Covid-19 on the business of the private hospital forced SVHG to negotiate an exemption with its bankers, as detailed in the going concern statement attached to its 2020 accounts:

“St Vincent’s Private Hospital is financed through property and equipment loans from a financial institution and third party investors relating to the construction of the facility and an overdraft for working capital purposes. Loan repayments are made to a Sinking Fund deposit account. Usual financial covenants apply to the facilities. From mid-March 2020 to 30 June 2020, the hospital ceased providing private healthcare services and, under the terms of an agreement with the HSE, the facility was made available to the public healthcare system to deal with the then requirements arising from the Covid-19 pandemic. The arrangement with the HSE provided for recovery of costs in compensation.

“The hospital re-commenced private healthcare services in July 2020, with a gradual ramp up in activity on transition. The private hospital has also entered into an arrangement for the provision of surge capacity to the public health system to cover the ongoing demands of the Covid-19 pandemic. As a result of the impact of the initial HSE agreement on private healthcare income, management sought an agreed suspension of covenants through 2020. The actual outturn for 2020 was ahead of the reforecasts prepared to take account of the pandemic and the initial HSE agreement and the hospital continues to trade in line with its forecasts and plans. Although trading is in line with plans reflecting the impact of the pandemic, the Company’s bankers have agreed suspension of covenants for 2021 to take account of the impact of the pandemic, the increase in working capital requirements as a result of delays in processing patient billings due to the HSE cyber-attack and the impact on the overall leverage covenant.”

Asked about the current status of the covenant suspension initially agreed until the end of 2021, the group spokeswoman said: “SVHG has regular and frequent discussions with its bankers. This involves reviewing its covenants. SVHG’s bankers, Bank of Ireland, have agreed the extension of debt covenant waivers into 2022.” She declined to say when this new extension would expire, but added that it was still in place today.

The examination of SVHG’s debt arrangements by the Comptroller and Auditor General over a decade ago signalled that they would need to be updated when the term of loans contracted for the new private hospital expires, which the report expected to happen in 2024. The SVHG spokeswoman clarified that this date would not mark the end of the group’s need for significant property-backed finance: “The current facility expires in 2025 rather than 2024 when the facility will be partly repaid and the balance of the loan is intended to be refinanced,” she said. 

Bank waiver for NMH site

What does this all mean for the portion of the site identified to build the new National Maternity Hospital? First, it is mortgaged and will remain so for the foreseeable future, and breaking it up from the wider campus to donate or sell it to the state would plunge the whole St Vincent’s group into an unsurmountable debt crisis. This explains why the lease option, even over 299 years, is the only one acceptable to SVHG. 

The proposed lease for the site includes the following clause: “The Tenant acknowledges that the Landlord has created security over its interest in the Premises and on the date of this Lease has furnished consent of its lender to the creation of this Lease.” The SVHG spokeswoman confirmed to The Currency that Bank of Ireland was the lender providing this consent and added: “Bank of Ireland has also granted the waiver in respect of the potential breach of covenants.”

The presence of state-funded buildings on the property caused issues over secured borrowing conditions between SVHG and the HSE before, which led to the Comptroller and Auditor General’s report. The solution they found at the time was a side deal giving the HSE right of first refusal on properties used to build existing publicly-funded facilities in case SVHG defaulted on its debt.

The group spokeswoman said “that agreement continues to apply and there have been no changes to that agreement”, adding that the HSE would retain these rights after the expiry of the existing Bank of Ireland debt facility. A spokeswoman for the HSE told The Currency that the agency had not been notified of any change in the circumstances governed by the agreement.

Yet we are now at a point where SVHG faces the end of the debt covenants relief it has negotiated with Bank of Ireland at an unspecified date “into 2022”. The lease for the new maternity hospital does seem to protect it from associated risks, but the document is scant on detail. 

This is what we should hear politicians probe all participants to the project about.