Typically between 7 per cent to 15 per cent of the project financing requirement is provided by the project sponsors through equity and subordinated loans. Equity and subordinated loans are paid a return (as dividends and subordinated loan interest) from surplus project cashflows after all other project costs have been met. Equity carries a first loss position in the project company (eg for performance penalties that reduce revenues or liabilities associated with asset ownership), and mitigates risks through insurance and through passing through risks in the terms of sub-contracts awarded by the project company.
Equity and subordinated loans in PFI project companies are usually transferable, subject to any restrictions set out within individual project contract terms.
Returns in excess of bid expectations that may be earned by equity and subordinated loan investors are not limited under the terms of most PFI contracts.