In a healthcare P3, the private partner doesn't just build the facility — it finances it, raising the capital up front and recovering that capital over decades through performance-based payments. This article explains the financing machinery: the special-purpose vehicle (SPV) that sits at the center of the deal, how its debt and equity are layered, how lenders enforce performance, and how lifecycle (whole-of-life) cost is funded so the building stays clinical-grade for the full concession term.

Scope note: the concession agreement, risk-transfer mechanics, and the availability-payment mechanism are covered in the sibling Article on contract and risk. This article stays in the finance lane — the capital structure, the funding sources, the lender relationship, and how money is reserved and released over the life of the asset.

A P3 is "project finance," not corporate finance

The defining feature of a P3's funding is that it is non-recourse (or limited-recourse) project finance: lenders and equity investors are repaid almost entirely from the cash flows the project itself generates, not from the broader balance sheets of the companies that sponsor it. If the project underperforms, the sponsors' downside is generally capped at the equity they put in — their other assets are ring-fenced.

This is the opposite of how a hospital is conventionally funded. A public health system normally pays for a new facility with municipal/tax-exempt bonds, state appropriations, or philanthropy, and owns the building outright. In a P3, the private consortium arranges the financing and is repaid by the public authority over the concession term (commonly 25–35 years for a hospital, rule-of-thumb). The financing structure is what makes the long-term risk transfer credible: because real third-party money is at risk, lenders and investors impose discipline on cost, schedule, and long-run performance.

Key consequences of the project-finance frame:

• Cash-flow-based, not asset-based. Repayment depends on the project delivering the contracted service (an available, compliant facility), so every party is motivated to keep the building performing.
• Highly leveraged. Project finance typically runs 70–90% debt to 10–30% equity (rule-of-thumb), because the predictable, government-backed revenue stream supports a lot of debt.
• Ring-fenced. The deal lives inside a dedicated legal entity (the SPV) so that the financing, assets, and liabilities are isolated from the parent companies.

The SPV is the legal and financial heart of the deal

Every P3 is built around a special-purpose vehicle — a standalone company (often called ProjectCo) created solely to deliver and finance this one project. The SPV is the counterparty to the public authority on the concession agreement and the borrower on the debt. It owns nothing but the rights and obligations of the project; it has no other business.

The SPV typically has a thin internal organization and passes its obligations down through back-to-back subcontracts to the firms that actually do the work:

The point of this structure is risk pass-through: the SPV transfers construction risk to the D&C contractor and operating/lifecycle risk to the FM operator on terms that mirror the SPV's own obligations to the authority. The SPV's residual risk is the interface risk — the gaps between subcontracts — plus financing risk.

In US healthcare, the SPV's scope is almost always restricted to the non-clinical envelope — the building, its engineered systems, and facilities management — because the public health system retains the clinical service, staffing, and the regulatory licensure that goes with patient care (EMTALA obligations, CMS Conditions of Participation, accreditation by TJC or DNV). The SPV's revenue therefore depends on keeping the building compliant and available for the clinicians, not on running the clinical service itself.

The capital stack: senior debt, equity, and (sometimes) subordinated layers

The SPV funds construction by drawing on a committed capital stack assembled at financial close. The layers, in order of repayment priority:

1. Senior debt — the largest tranche. Either bank loans (often a club or syndicate) or project bonds placed with institutional investors (pension funds, insurers, infrastructure debt funds). Senior lenders have first claim on cash flows and the strongest security. In the US, tax-exempt structures (e.g., where a public conduit issues the bonds) can lower the cost of debt and materially change the value-for-money calculus.
2. Subordinated / mezzanine debt — an optional middle layer, sometimes provided by the equity sponsors themselves (shareholder loans), repaid after senior debt but before equity distributions. It is often used for tax efficiency and to tune the blended cost of capital.
3. Equity — the thinnest but most expensive layer, last to be repaid and first to absorb losses. Equity earns the highest return precisely because it is the genuine risk capital; if the project fails, equity is wiped out before lenders take a loss.