“A South West Council has agreed a £14.9m loan to its local NHS foundation trust for a new pathology centre.
Bournemouth, Christchurch and Poole Council last week agreed the loan, which, at an annual interest rate of 3.5%, will reap it £4.2m over the 15 year period of the loan.
The trust will use the cash to pay for a new pathology unit, which the trust hopes will lead to efficiency savings.
A report to councillors said that “it is important to emphasise that the Royal Bournemouth and Christchurch NHS Foundation Trusts will be required to make £993k annual capital repayments and the associated interest payment regardless of their financial position, operational performance or success of the One Dorset Pathology service”.
Foundation trusts are not legally allowed to secure a loan against operational assets, so the loan will be unsecured, the report said.
However, it would be issued based on creditor assurance as laid out in Department of Health guidance.
A risk assessment carried out the council concluded that central government would pick up any liabilities if the trust got into financial difficulties and was dissolved.
“This means that all creditors of an FT are protected and all liabilities of all FTs are safeguarded,” the report said.
The trust will make repayments of just under £1m each year.
An interest rate of 3.5% has been based on a suggested rate of 2.75% plus the 0.75% EU state aid margin rate for organisations for strong and normal levels of collateral.
The council said that it would earn £2.4m more on the loan than if it invested it at the prevailing 15-year interest rate.
A one-off upfront arrangement fee of £45,000 will also be payable to cover due diligence and monitoring work.
The council has extended its normal five-year period for investments in order to allow the loan to be made.
The new pathology facility will either be built on land owned by the Royal Bournemouth and Christchurch Hospital at Castle Land East Bournemouth or by land purchased from the Council which is currently part of an adjoining site.
The Royal Bournemouth and Christchurch Hospitals NHS Foundation Trust provides healthcare to the residents of Bournemouth, Christchurch, East Dorset and part of the New Forest. It gained Foundation status in 2005.
The council follows two others which are known to have made similar loans to NHS trusts.
In 2014, Northumberland County Council finalised a loan of £100m to a local NHS trust, which used the money to buy itself out of its outstanding PFI contracts.
In May last year, Blackpool Council agreed a loan of £27.1m to Blackpool Teaching Hospitals NHS Foundation Trust to help restructure the trust’s debt.”