by Edward Simpkins
Partnership Property Management, the consortium that is set to buy the DSS estate, has dropped plans for a bond issue to fund the deal .
Instead, Abbey National is lending PPM £250m to buy the 700-building DSS estate when PPM signs the final contract in April.
PPM, led by Goldman Sachs and headed by Martin Myers and Manish Chande of Imry, was selected in January to buy the 1.69m m2 (18.2m sq ft) of accommodation.
Under the terms of the deal, PPM will provide the DSS’s property and facilities management for the next 20 years in return for a flat fee.
The consortium had intended to exploit the government covenant and issue a bond backed by a portion of the fee income to raise the £250m up-front purchase price. But PPM was unable to obtain the necessary credit rating.
A source close to the deal said that the lack of time as well as uncertainty over the security of the income had scuppered the issue. “You have to go into more complex financing. It is always a more difficult route, especially when there’s very little time remaining. When you are looking at a new company, investors will want to know how the company runs before parting with their money,” the source said.
PPM’s contract contains strict penalty clauses based on how the DSS rates its performance. If customer satisfaction surveys do not show year-on-year improvement, income could be cut.
The up-front payment of £250m was a sop to the Treasury, which wanted to realise the value of the DSS’s property in the first year a PFI deal was signed.
The DSS, on the other hand, wanted to transfer the estate for nothing and realise the value through a low charge for occupancy.
The £250m is a compromise. John Mason, director of the PRIME project at the DSS, said: “We’ll take first charge over the difference between our valuation of the estate at £350m and what they get with the £250m up-front payment.”
