The previous scenarios assumed CCs were contributed during the construction phase, lowering the overall requirement for private sector funding. However the timing of CCs is critical. In some jurisdictions, Canada especially, alternative forms of CC have continued to evolve. The clearest distinction is between:
▪ Milestone payment - conventional CC paid progressively during construction; and
▪ Substantial Completion Payment (SCP) - a large lump sum, say covering 50% of total debt, but payable only after construction completion has been achieved. The proceeds are typically used to repay a short-term construction phase bridging facility which ranks pari passu with other senior debt prior to repayment.
As long as the tests for payment of the SCP are sufficiently robust to ensure that completion has truly been achieved with minimal residual construction risk (and the public sector is strongly incentivised to ensure this is the case), we would regard an SCP payment as being due on day 1 of the operating phase of the project. We would ignore it for the purposes of our construction phase rating when we would instead consider the aggregate of the long term senior debt and the short-term bridging facility.