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Laura Thompson

Michal Skypala

Buysider reaction was largely muted to an ITV undercover documentary on UK mental health facility group The Priory Group that aired last night. The documentary depicts convicted sex offenders housed at Priory’s Kneesworth House Hospital, showing some patients being able to access the internet, including dating and explicit websites. However, the claims related only to one facility and did not represent a wider ESG risk, the buysiders said, believing that the deal will soon wrap up on a slight premium to previous pricing guidance.

Median Klinken, set to merge with Priory under Dutch private equity firm Waterland, brought an €800m-equivalent sterling/euro loan to market at the beginning of October, however commitments were delayed upon news of the upcoming documentary.

Pricing has moved, although not dramatically, with final pricing discussions ongoing and an update expected sometime this week, market sources report. The €500m tranche was first guided at E+475-500 bps, while the £250m tranche was talked between S+575-600 bps, with both offering a 99 OID. One buysider expects the margin to stay the same, only expecting a move down on the OID. 

The vast majority of buysiders are still interested in playing the deal, according to market sources and confirmed by most buysiders speaking with 9fin.

“Basically, the whole thing is slightly overblown,” said one buysider. “It wasn't like a Panorama, though, yes, it raises concern.”

“I can tell you before watching it that we are going to buy it,” said a second buysider. “We like the business.”

A third buysider added: “My feeling is that ITV picked the Priory institutions where staff will be less likely to give sympathy to the patients [...] I don't have enough information to assess if it is systematic. We have no comparable statistics, if you look at public managed institutions, we don't know how many failures like this happen,” the third buysider went on, describing the company as “forthcoming'' throughout this process and reaching out to the buyside with letters describing what they expect the documentary will include before it aired. 

The UK regulatory board, the Care Quality Commision (CQC), recently rated the hospital ‘good’, they added, as reflected in last night’s programme.

Two years earlier Kneesworth was placed in special measures after it allowed a convicted killer to go alone to Tesco and he absconded. The undercover investigation was prompted by a whistleblower who contacted the programme makers. Following the documentary, the CQC carried out another unplanned inspection and it is due to report its finding. According to the programme makers, 30 of the 318 Priory sites are rated lower than good. 

The third buysider likes Median's ESG credentials and does not see the new documentary as meaning elevated ESG scrutiny, rather that it could mean an operational risk for performance, having more frequent regulatory visits and, in the worst case scenario, Priory “can close the hospital”. 

The documentary highlighted staff failings to adhere to official care guidelines and inadequate responses to violence from patients, with the undercover reporter being left alone with high-risk offenders without adequate supervision and within a fortnight of working in the hospital.  

“We would always ask for more oversight, you definitely need staff training, this staff was inexperienced who wasn't engaging with the patient in the correct way,” said the third buysider. “The question also is if it is the right decision for these cases to be in Priory [Group] wards rather than high acute institutions. It is the NHS that gives the diagnosis and I wonder if they are in the wrong category." 

Whilst the companies said they do not comment on market speculation, a Priory and Median representative told 9fin: “By focusing on highly-selective, unrelated incidents involving a very small proportion of the hospital’s patients, on its two most demanding wards, the programme misrepresented the hospital overall, and the complex realities of managing serious mental and behavioural conditions. [Priory] takes the safety of the public and the welfare of patients and staff extremely seriously.”

A fourth buysider, who did turn their back on the deal, said: “We pulled our orders before the doc aired but after they let us know what was going to be in it. It was too much noise and it was a marginal credit in the end anyway, so we pulled just in case. It won’t have a significant impact on our investments.”

“What is different here is that it’s headlines in mainstream media,” said a fifth buysider, who is still going to put in an order. “If this were behind closed doors, it wouldn’t be such an issue. But now your investors or your owners can see this is in the news and ask: ‘We’re not invested in that are we?’ The reputational risk is different when it’s in the Daily Mail and on prime time [...] But the deal will definitely get done.”

Commitments for the loan were originally due on Thursday 7th October. The deal was subsequently put on hold pending the programme. Read a full preview of the loan here.

Barclays, Goldman Sachs and SEB are joint global coordinators and mandated lead arrangers, alongside MLAs Bank of Ireland and Natwest. Barclays is also the administrative agent.

Barclays and Waterland declined to comment. SEB did not respond to a request for comment.

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Median - Buysiders shrug off Priory ITV documentary, expect pricing bump

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