3.7 Debt is the second bearer of risk since it receives interest and repayments of capital ahead of equity. In the case of insolvency, debt holders have recourse to the company assets ahead of equity holders. Debt, in contrast to equity, receives a return in the form of interest which, except in circumstances of distress, does not rise or fall with the fortunes of the borrower. The focus of debt providers is therefore on ensuring that their interest is paid and their capital returned, as opposed to enhancing profit. In a PPP project, debt providers therefore have a strong interest in ensuring that the risks allocated to the SPV, through the contract between the authority and the SPV, are passed on to subcontractors who are able to manage them and are financially strong enough to bear them. Debt providers have a long-term interest in the project as their loan is repaid over time, often close to the full length of the project. They therefore also provide a benefit to the authorities through ongoing review and monitoring of the operations of contractors.
3.8 The dividing line between equity and debt is not clear cut and just because a financial instrument is called equity or debt does not mean it will necessarily have all the characteristics outlined above, or function as such. Various financial instruments exist that combine features of debt and equity in their design.