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DEBT & EQUITY FINANCE FOR PFI & PPP UK 2003
Buy a copy of the Debt & Equity Finance for PFI and PPP Report from AMA Research
Introduction/Overview Summary Of Contents List of Contents & Tables  
       

CONTENTS and LIST OF TABLES & CHARTS 

1.

INTRODUCTION - THE FUNCTION OF PFI/PPP

 6
1.1 THE DEVELOPMENT OF PFI/PPP OVER THE LAST TEN YEARS 7
1.1.1 The First Five Years 1992 - 1997 7
1.1.2 The First Labour Government 1997 - 2001 8
1.1.3 The Second Labour Government 2001 - To Date 9
1.2 POLICY ISSUES/DEVELOPMENTS 9
1.3 ACCESS TO FUNDING 10
1.4 ALLOCATION OF RISK 10
1.5 VALUE FOR MONEY CONSIDERATIONS 11
1.6 INTRODUCTION OF MANAGEMENT TECHNIQUES 12
1.7 WHOLE LIFE CYCLE COSTING 12
1.8 "BUNDLING" OF SMALL PROJECTS 12
1.9 IMPLICATIONS FOR THE PRIVATE SECTOR 13
1.9.1 Complexity Of Projects 13
1.9.2 Length Of Contracts 13
1.9.3 Need For Consortia 14
1.9.4 Development Of SPVS 14
1.9.5 Utilisation Of Off-Balance Sheet Funding 14
1.10 SUMMARY - RECONCILING CONFLICTING OBJECTIVES 15
2. PROCEDURES 16
2.1 THE PROCUREMENT PROCESS 16
2.1.1 Establish Business Need: 18
2.1.2 Appraise The Options: 18
2.1.3 Outline Business Case, OBC: 19
2.1.4 Creating The Project Team: 19
2.1.5 Publication Of OJEC Notice: 19
2.1.6 Deciding Tactics: 20
2.1.7 Pre-Qualification Of Bidders: 20
2.1.8 Short listing: 20
2.1.9 Revisit And Refine The Original Appraisal: 20
2.1.10 Invitation to Negotiate: 21
2.1.11 Negotiation With Bidders: 21
2.1.12 Selection of Preferred Bidder and Negotiation to Financial Close: 22
2.1.13 Award Contract: 22
2.1.14 Contract Management: 22
2.2 COMMENT 22
3. FINANCIAL REQUIREMENTS 24
3.1 FINANCIAL REQUIREMENTS PRIOR TO FINANCIAL CLOSE 24
3.2 THE FINANCIAL PACKAGE - PROJECT REALISATION 26
3.2.1 Availability 26
3.2.2 Flexibility 26
3.3 COVENANTS 30
3.3.1 Sculpting 31
3.3.2 Renegotiation 31
3.3.3 Profitability 32
3.4 ON-GOING PAYMENTS 32
3.4.1 Interest Rate Payments 32
3.4.2 Retail Price Index and Indexation 33
3.5 REPAYMENT SCHEDULES 33
3.5.1 Repayment Structure 34
3.5.2 Financial Structure 34
3.5.3 Net Present Value, NPV, and the Internal Rate of Return, IRR 35
3.6 ONE-OFF PAYMENTS OR COSTS 36
3.6.1 Arrangement Fees 36
3.6.2 Underwriting Fees 36
3.6.3 Due Diligence 36
3.6.4 Commitment Fees 36
3.6.5 Re-deposit Rates 37
3.7 SUMMARY 37
4. TYPICAL FINANCIAL INSTRUMENTS 38
4.1 FINANCIAL INSTRUMENTS 38
4.1.1 Bank Debt 38
4.1.2 Bonds 41
4.1.3 Subordinated Debt/Mezzanine Financing 43
4.1.4 Equity 43
4.2 SPECIALIST SOURCES OF FUNDING 44
4.2.1 EIB 44
4.2.2 Securitisation 44
4.3 STRUCTURES FOR PFI/PPP FINANCING 45
4.3.1 Special Purpose Vehicles 45
4.3.2 Large PFI/PPP Projects 46
4.3.3 Medium Sized PFI/PPP Projects 47
4.3.4 Small PFI/PPP Projects 48
4.4 RELATIVE IMPORTANCE OF FINANCIAL INSTRUMENTS 48
4.5 ADDITIONAL SOURCES OF FINANCE 49
4.6 COMMENTS 49
5. KEY VARIABLES 51
5.1 TERM 51
5.2 INTERNAL RATE OF RETURN, IRR, OVER THE PROJECT LIFE 53
5.3 PERFORMANCE RISK 55
5.4 DEMAND RISK 55
5.5 POSSIBILITY OF RENEGOTIATION 56
5.6 PAYMENT MECHANISM 57
5.7 ALTERATION IN GOVERNMENT POLICY AND LAW 57
5.8 IMPACT OF TAXATION 58
5.9 INSURANCE COSTS AND THEIR APPORTIONMENT 59
5.10 SIGNIFICANCE OF AUDITING/ACCOUNTING CRITERIA ON RISK TRANSFER 59
5.11 THE ROLE OF THE RATING AGENCIES 60
5.12 COMMENT 60
6. ADDITIONAL FACTORS 62
6.1 STAFF AND MANAGEMENT RESOURCE CONSTRAINTS 62
6.2 LAND AND PROPERTY AVAILABILITY 63
6.3 FINANCE GENERATED FROM THE DISPOSAL OF PROPERTY 64
6.4 PLANNING PERMISSION 64
6.5 MIXED USE OF PROPERTY BY THE BENEFICIARY AND THE GENERAL PUBLIC 65
6.6 COMMERCIAL REVENUES OR BENEFITS AND THEIR APPROPRIATION 66
6.7 NEW CONTRACT PROVISIONS RELATING TO REFINANCING 66
6.8 SCOPE FOR INNOVATION 68
6.9 COMMENT 69
7. A CASE STUDY OF COMPETITIVE FUNDING - THE TREASURY BUILDING 71
7.1 BACKGROUND 71
7.2 THE FINANCING COMPETITION 72
7.2.1 Pre-Qualification 72
7.2.2 Comparison Of Offers 74
7.2.3 Selection 76
7.2.4 Comment 77
7.3 SUMMARY 78
8. MAJOR PLAYERS 79
8.1 TYPES OF INSTITUTIONS 79
8.1.1 Commercial Banks 79
8.1.2 Investment Banks 79
8.1.3 Bond Arrangers 80
8.1.4 Specialist Funds 80
8.1.5 Venture Capitalists 80
8.1.6 Building Societies 80
8.1.7 Insurance Companies 80
8.1.8 Monoline Insurers 81
8.1.9 Pension Funds 81
8.2 EQUITY 81
8.3 DEBT 82
8.4 COMMENT 84
8.5 SUMMARY 85
9. CONCLUSION 86
9.1 NATURE OF PFI/PPP 86
9.2 OFF BALANCE SHEET 86
9.3 RISK TRANSFER 86
9.4 LONG TERM 87
9.5 IMPORTANCE OF LONG TERM FINANCING 87
9.6 UNITARY CHARGE 87
9.7 PAYMENT MECHANISM 88
9.8 HIGH LEVERAGE 88
9.9 PERCEPTION OF RISK 88
9.10 IRR 89
9.11 SCOPE OF PROGRAMMES 89
9.12 DEMAND 89
9.13 CONTINUING AVAILABILITY OF FINANCING 90
9.14 SUPPLY 90
9.15 FUTURE DEVELOPMENTS 90
GLOSSARY 92
CHARTS & TABLES
CHART 1 FORMAL PROCUREMENT PROCESS. 17
TABLE 2 TREASURY BUILDING PFI - PARTICIPANTS 72
TABLE 3 CHARACTERISTICS OF BANK AND BOND FINANCING 75
TABLE 4 MAIN DETAILS OF THE BIDS 76
TABLE 5 PROVISION OF EQUITY FOR PFI/PPP PROJECTS - KEY COMPANIES 82
TABLE 6 PROVISION OF DEBT FOR PFI/PPP PROJECTS - KEY COMPANIES 83

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