The refinancing provisions of the Standardisation of PFI Contracts (Version 4) ("SoPC4") have recently been updated by HM Treasury to reflect the current state of the financing market, in particular the potential availability of lower interest rates, and the impact this may have on risk allocation.
The latest amendments are intended to address the potential for a windfall increase in distributions to equity in the event that pricing in the debt market significantly improves and the project is refinanced to take advantage of lower interest rates.
As a means of achieving this objective, the refinancing provisions have been revised to:
- Ensure that 90% of any refinancing gain made from a reduced
margin for lenders arising as a result of Qualifying Refinancing
will be paid to the authority;
- Set out the share of any other refinancing gain (other than as
a result of a reduction in the margin) that the authority will be
entitled to receive; and
- Specify how costs are allocated to the "margin gain" which forms part of a refinancing gain.
All PFI projects with a financial close after 27 April 2012 are required to apply these amended refinancing provisions. The revised drafting can be found here.
SoPC4 is the current version of guidance and standard wording, issued by HM Treasury in March 2007, for use by public sector bodies when drafting PFI contracts.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.