The Authority's contracting counter-party will be an SPV, a wholly owned subsidiary of the hubco for the relevant territory (referred to in the Standard Project Agreement as "Sub-hubco"). The Authority (and other participants) will have the option, but no obligation, under the hubco Shareholders' Agreement to invest in the subordinated debt of the SPV.
Consistent with the Scottish Government's requirement that equity returns on revenue funded projects must be fixed or capped, a mechanism has been provided (Clauses 36 and 45) under which profits earned by the SPV that would otherwise be paid to the equity investors (i.e. the holders of the SPV's shares and subordinated debt) will be shared equally with the Authority once a minimum threshold level of equity return (as fixed in the template DBFM Project Agreement within the Territory Partnering Agreement) has been achieved. If profits are such that the equity return would exceed a second threshold were all the profits to be distributed to equity, all further profit distributions will be payable to the Authority. The Authority's shares of excess profits may either be paid to it in lump sums or be used to reduce the future service payments.