The challenge
The latent value that can be realised through refinancing is one that no public or private sector organisation should ignore. An increasing number of existing PFI /PPP projects are reaching a maturity at which material financial gain can be achieved by re-competing the project funding. However, it is important to realise that simply arranging a better margin on a loan is only one of the means by which a financial return can be generated. In order to fully realise the potential of a refinancing transaction a number of factors need to be taken into account. These include length of loan, cover ratios, amount of loan and methods of distribution of any gain.
The way forward
Getting the best overall balance of these factors requires a combination of detailed technical analysis, commercial and market awareness, and negotiation skills. In addition there is a growing focus on refinancing from bodies such as the OGC and NAO, which means that refinancing is not something that can be ignored at any stage of a project. OGC has produced detailed guidance as to treatment of refinancing in all PFI/PPP transactions. All new projects should have a detailed refinancing clause in the contract setting out the principles and mechanics by which a future gain will be measured and shared. All contracts that pre-date this guidance must also retrospectively apply the guidance in order to assess whether a gain has been generated that qualifies for distribution of a share to the public sector. An experienced external advisor is often crucial to ensure that guidance is fully understood and applied and an optimal deal is achieved.
Our services include:
- Refinancing strategy advice
- Interpretation of OGC guidance to agree gain share distribution
- Assessment of quantum of gain
- Calculation of the impact of SWAP rate agreements and other hedging activities on the realisable gain
- Identifying the optimal methodology for distribution (lump sum versus reduced unitary charge)
- Negotiating refinancing clauses and mechanics in new contracts.
How PKF can help
PKF has been involved in advising both the public and private sector on refinancing transactions from the earliest stages of this market. In a financial model audit assurance role we have advised on the financial mechanics of some of the earliest refinancing transactions. We have advised on a number of transactions with funding value ranging from £30million to £350million.
As lead advisor we have worked with the Department for Work and Pensions as well as a number of private sector clients including Group 4 and Bilfinger Berger BOT. Our support has ranged from interpretation of OGC Guidance and Code of Conduct to assessment of issues such as the extent to which new funding qualifies for distribution to the public sector to detailed technical modelling of quantum of gain and optimal method for distribution.
Further information
For further information please click here to contact us.
|