The table below highlights issues that should be considered or taken account of when evaluating the pricing, deliverability and robustness of Bank and Bond solutions. Accordingly these types of areas should be part of the internal public sector finance evaluation criteria and overall VfM assessment of bidders' proposals.
The table assumes that reference terms and guidance above for Bank and Bond offers having been reflected and that Reference Rates are directly comparable between alternative solutions.
Assessment Element | Details |
Quantitative | - reference Libor / Gilt rate and buffer priced on same day / equivalent duration - pricing at "live" rates / appropriate timing of this - liquidity issues / demand issues (different capacities in the specific markets, particularly for bonds) - fully underwritten offers / syndication issues (particularly for banks) - cover ratio requirements (particularly for bonds where subject to Rating Agencies review) - gearing level |
Qualitative | - availability of variation funding facilities - flexibility of variation facilities - exposure to monocline downgrade risk prior to close (in particular for bond) - future refinancing upside potential (if calculated, then a quantitative element also) - ability to extend debt tenor - timetable to reach commercial and financial close - compliance with and sign up to SOPC3 / SSSC (including Payment Mechanism and calibration) - ability to offer alternative routes (e.g. switch to different swap or bond type) - interface with equity sources, requirements and timing of equity injections - termination issues (including flexibility), breakage costs including Spens, RPI (including impact on the payment mechanism) / hedging requirements (if can be calculated, then a quantitative element also) - stage at which hedging / swaps are to be fixed - impact on Accounting Treatment (for example if repayment guarantees are required from the public sector) |
Where applicable, PAs should make comparability adjustments as necessary, particularly in respect of quantitative issues.
Depending upon the funding route, as well as being central to evaluation, some of the issues above will be of concern up to financial close and others will be of concern over the duration of the project. Therefore, ongoing consideration is required.