A.39 Authorities should consider using standardised financing assumptions to assess bids when terms proposed by bidders appear off-market or there is a long period of time until planned financial close. These terms should be set by reference to financing terms available in the market for similar project risk at the time of the bid assessment. Projects that are novel, complex or large (or those that involved non-traditional financing sources) may not be suitable for standardised financing assumptions.
A.40 Standardised assumptions should include the underlying gilt or swap rates, swap credit margin, debt margins and debt tenor. Debt service coverage ratios may also be standardised unless there is a wide variation for different business models underpinning different bids. Care should also be taken in standardising assumptions such as maintenance and handback reserving requirements which may be highly dependent on the technical solutions of individual bidders. Once the preferred bidder is announced, financing terms for that bidder may be subjected to a DFC.
A.41 Authorities should continuously monitor the suitability of standardised financing assumptions and update their VfM and affordability analyses as required.
A.42 Authorities may consider making an exception from standardised assumptions for bids financed on a corporate basis but only if the Authority considers the offer of finance to be robust over a suitable time period.