Post on 01-Feb-2016
description
NPDO
Non Profit Distributing Organisation
Mikko Ramstedt, Project Adviser
Financial Partnerships Unit
Contents
Background Why a Non Profit
Distributing Organisation? NPDO Structure and
Governance Concerns / Issues Process
NPDO Model – Background
Argyll & Bute Council designated pilot
Partnerships UK (PUK) cosponsor The Council’s Advisers
Ernst & Young Shepherd & Wedderburn MPM Capita
NPDO – Why a new PPP model?
Political concerns over profits in PPP – Desire to retain surpluses for educational purposes
More pro-active and stable partnership Improved perceptions about PPP Possibilities for new areas of PPP PPP evolving alongside standardisation
Objectives
To deploy a wholly debt based capital structure on a schools PPP that…
Improves stakeholder acceptability and participation
Achieves at least as good value for money as traditional ‘equity’ based PPP
Standard Outline Structure
Education AuthorityCapital funding -
Construction / FM Co.sSpecial Purpose Vehicle (SPV)
Equity holders ~ 1%Market investorsSub debt - lenders~ 9%
Senior debt lenders~ 90% Banks
Facilities Management Co
Lead Construction Co
FM sub-contracts Design sub-contractsTrade sub-contractsAdviser sub-contracts
Benefits from PPP
Single pointdelivery system
Improved service provision
Performance based payments
Life-cyclemaintenance and facilities
management
Initial capitalinvestment
PPP
Education Authority
Capital funding - Construction / FM Co.s
SPV - NPDO Market investorsCharity Sub debt - lenders c. 10%Community stakeholders Senior debt lenders c. 90% Banks
Facilities Management Co Lead Construction Co
FM sub-contracts Design sub-contractsTrade sub-contractsAdviser sub-contracts
NPDO Outline Structure
Additional Benefits
Stakeholder involvement
included as a right
SPV surpluses reinvested in
project‘Normal’ profit level for sub-contractors
NPDO
Principles
Minimum disturbance to traditional equity based schools estate PPP model
Follow Scottish Executive guidance on standard form schools contract
Achieve similar levels of risk transfer as under traditional PPP
Surpluses arising are applied to the benefit of authority education services
Risk profile and corporate governance acceptable to financiers
Management incentives consistent with stable and sustainable performance
Structure part 1
SPV a company limited by shares Small board; Stakeholder, Independent
+ 3 other directors Junior capital is exclusively sub-debt Senior debt and sub contracts as per
traditional model SPV will elect to donate surpluses to the
charity rather than distribute dividends No restrictions on distributions by sub-
contractors
Why a Company Limited by
Shares? The traditional corporate vehicle Flexibility / familiarity Minimum deviance from existing
PPP business model Does not rule out bidder variants
Structure part 2
Shares in SPV stabled to sub-debt Sub-debt can be provided by sub-
contractors or senior lenders to the SPV, or third party funds and institutions
SPV is: Private sector classified ‘Profit’ (Surplus) maximising Tax paying entity
Fully commercial operating basis
Why ‘Profit’ (Surplus) Maximising?
Has to manage the same risks and sub-contracts, and deliver the same operating performance as traditional PPP
Management incentives tied to generation of surpluses, to maintaining credit equality of junior and senior debt and other targets
Familiar regime for efficiency and performance drivers
Corporate Governance
SPV board policies: No dividend distributions Surpluses applied according to agreed
priorities1. Management incentives2. Build-up reserves3. Additional scope of services pre-defined under
the contract4. Donations to the charity
Having applied all statutory and fiduciary duties, SPV’s objective to deliver value for money to the Authority
PPP - v – NPDO
Senior Debt Sub Debt Equity
Senior Debt Sub Debt Management
Incentives
Benefits: PPP - v – NPDO
Established Partnership Bidders Unitary
Charge
Novel Partnership Strong Bidder
Interest Financial (UC) Non-financial
Some Concerns
No equity? Debt Service Cover Ratio
Governance arrangements?
Directors’ duties unchanged
Value for Money
Financial Application of surpluses UC level Tax-efficiency
Non-financial Acceptability Stakeholder involvement Wider benefits
Issues for Local Authorities
Bidder response Financial Balance
Surpluses versus Low UC
Charity Tax efficiency – Availability of Surpluses Balance Sheet Treatment
Preparation!
Argyll & Bute Pathfinder –
Process Consultation Q4 2002 OJEU March 2003 ITN June 2003 BAFO February 2004 Provisional Preferred Bidder March 2004 Statutory Consultation SE final approval, and Financial Close September 2005
Summary
Background Why a Non Profit
Distributing Organisation? NPDO Structure and
Governance Concerns / Issues Process
mikko.ramstedt@scotland.gsi.gov.uk
www.scotland.gov.uk/ppp
Mikko Ramstedt, Project Adviser
Financial Partnerships Unit