11.14 Interest rates should always be transparent in the financial model and should include a buffer of 0.5% above the relevant interest rates ruling at the time of submission of bids. The interest rate assumptions to be used during the dialogue period and within the Finale Tenders should be specified in the ITPD and ITSFP. This will enable comparability between bids. Participants who can genuinely raise funds at a lower interest rate cost should include this as a variant bid. This should allow the NHS body some flexibility if interest rates rise between when bids are received and financial close. By the time of Full Business Case submission, an interest rate buffer of 0.25% above the relevant interest rate ruling at the time of FBC approval will be required. The relevant interest rate is most likely to be that on which the proposed hedging strategy is based. Therefore, the impact of live rates must also be assessed.
11.15 NHS bodies should understand how funds are to be raised and what funding terms and conditions the project company can obtain in relation to other similar transactions currently in the market. It is important to note that the terms available to participants may vary based on the perception of project risks, the participants' companies' credit rating, the structure and nature of the funds to be raised. Participants should be asked to:
• specify the factors which would alter their financing costs; and
• give details as to how sensitive their bids are to changes in financing costs; as a minimum, a range of plus or minus 0.25% and 0.5% should be used.
It is essential that the NHS body satisfies itself (usually by taking professional advice) as to the reasonableness of the funding assumptions included in the model.
11.16 The financial model should also contain details of the cost and timing of the interest rate hedging strategy that the project company have allowed for the financing and of the advisory and up front fees associated with financing the project.