As with equity investors, banks need to consider the opportunity cost of the capital for the loan they are making, a consideration reflected in the interest rate charged to the borrower.
One of the issues with the bank's pricing is that the interbank rate is a variable rate, so the borrower is exposed to this variable risk over the long term of the loan. While this is a risk that all borrowers have to manage, because of the often long-term nature of infrastructure borrowing and potentially fixed revenue, the issue can be particularly acute for the infrastructure sector.
Many borrowers will therefore seek to "fix" this risk by using interest rate swap instruments, usually with one or more of the arranger banks. As with the syndication risk, the result of fixing this risk remains with the private-sector parties. However, if the public sector is fixing concession payments to reflect a fixed interest rate or is retaining any liabilities to pay compensation that includes the cost of breaking any swap instruments (which can be significant), the public-sector entities will need to understand the terms of the swap and their potential risks.
The pricing of bank debt described above is the type most commonly offered, but occasionally banks will offer a fixed price debt. This means that, rather than the borrower managing the interest rate risk, the bank manages this risk itself.