2. The secondary market is a general term referring to the trade of equity shares in PFI project companies (special purpose vehicles) after the project company has already been set up. By way of contrast, the primary market refers to the financing of share capital at the point the project companies are set up.
3. Similar terms apply to the markets for raising and trading in debt financing. But PFI contracts contain clauses allowing public authorities to veto changes in the debt financing and to share in any benefits. We generally refer to such changes in the debt financing as refinancing. This note relates solely to changes in the equity ownership and not to refinancing.
4. In general, the shareholders of a project company are allowed to trade their PFI shares freely, as they would any normal shares of a limited company. Only occasionally would a public authority have a say in such trades, such as a right to consent (not unreasonably withheld) in certain Defence contracts. The public authority is not a party to such trades and does not share in any proceeds. It is therefore important that the expected return to the shareholders over the course of the whole contract be carefully scrutinised during the contract tendering.
5. Typically, the primary market equity investors will be party to the contractual arrangements, often as either senior debt lenders or subcontractors to the project company. The secondary market equity investors will usually not have a direct involvement in the project company, except as owners.