Public-sector parties need to understand financing arrangements to appreciate the costs, robustness and sustainability of proposals

Arranging financing is a private-sector risk, but the public sector should also understand the cost and terms. Such circumstances may apply in the following situations, among others:

• If the cost of debt is part of any charges paid by the public authority, that authority will want assurance that these costs reflect the current market-by benchmarking with comparable transactions. Factors that will be considered are how those costs may vary over time, and whether such changes will affect the charge.

• If the financing proposed is novel, or outside expected parameters, then the public authority will want to understand its deliverability and robustness.

• In partnership and concession-type transactions, the rights of the financiers under default and termination circumstances need to be understood by all parties, especially if the authority has obligations to ensure the continued operation of the facility or to pay compensation to the financiers.

• Depending on the obligation of the authority to the debt providers, the authority may want the right to approve any changes to the financing. This is important for any infrastructure transaction where it is highly likely that the financing will change as the project or enterprise moves through its life cycle.

Table 1: Comparison of hard and soft mini perms