The Contractor's financial structure put in place at financial close is not fixed for the duration of the Contract. The Contractor's shareholders will naturally look for opportunities to reduce the Contractor's cost of finance thereby releasing more cash for distribution to the shareholders. This will involve replacing more expensive sources of finance with lower cost finance.
The Contractor is most likely to undergo a refinancing when there has been a significant reduction in the risks or costs within the project, for example following completion of commissioning or where there have been an improvement in the funding terms available in the market.
The Contract Manager should seek specialist legal and financial advice when negotiating with the private sector on a proposed refinancing. (S)he should also contact Defra if there is any doubt about how best to apply the principles to the project.
A refinancing brings about a significant change to the financial and economic structure of a PFI project as originally agreed at Financial Close.
The WIDP Contract (Schedule 16) sets out a detailed procedure for the Authority and Contractor to agree a refinancing of the Project. If the Contractor wishes to refinance the Project, it must, as a prior step, secure the Authority's approval. The Authority should consider the refinancing request in good faith.