37.7.1 A variant structure is one which either: (i) has some of the features of project finance and some of corporate finance; or (ii) follows the standard approach to corporate finance (see 37.2.5) except on a few points which may be sector-specific. The question is not in which category - project or corporate - to place the structure as a matter of principle, but rather which treatments of the various evaluation and contractual issues are most appropriate to the structure in question, and consistent with the Authority obtaining the best value for money.
37.7.2 Variant structures will fail to meet one or all of the requirements of Section 37.2.5.
37.7.3 Some examples of issues which can arise with the use of such structures are given below. These are given by way of illustration of variant structures and do not necessarily reflect best practice, nor are they complete case studies on sector-specific issues.
• The Contractor may arrange leases, hire purchase agreements or similar for equipment forming part of the Project scope with the support of its balance sheet, in apparent compliance with corporate finance principles. However, the lessors or other finance counter-party may seek an acknowledgement of assignment from the Authority of payments its makes to the Contractor, or seek a security interest in the equipment, which breaches the corporate finance criteria (see Section 37.2.5).
• The Contractor may be a project-specific SPV, wholly owned by a company of substance, which has no capital resources of its own and relies on guarantees or on lending from its parent. In certain circumstances, the Authority may wish to have the right to require the parent to inject capital into the Contractor rather than rely solely on guarantees, under the terms of a direct agreement between Authority and parent.
• A loan arranged by the Contractor for a Project on a corporate-finance basis may be ring-fenced on its balance sheet, so that hedging instruments arranged for the loan will be project-specific despite their being supported by the Contractor's balance sheet.
37.7.4 Authorities should ensure that bidders using variant structures do not 'cherry-pick' between the benefits and drawbacks for Contractors and lenders of the provisions set out in this Section 37. Evaluation of variant structures should therefore always consider the issues set out in Section 37.4 (Corporate Finance - Evaluation Implications).