5.22 Generally in PFI deals there is a choice between two main ways of raising external finance: by borrowing from banks or by issuing bonds. Throughout the period of single bidder negotiation, a bond issue was the cheaper alternative. On 15 June 2000 a £406.85 million bond was launched successfully. Details of the overall deal financial structure and of the bond issues are at Appendix 2.
5.23 Bond prices are set by reference to the financial markets at the time of issue but are not generally determined through an open bidding process. The resulting cost of bond finance is measured by the difference between the return offered to bondholders and that on a comparable gilt-edged security. The final bond rate was 1.80 per cent higher than the comparable gilt, higher than earlier estimates during the competition and for other large accommodation PFI projects. For example, in April 2000 the Treasury Building bond, albeit for the smaller amount of £125 million, was priced at a margin of 1.63 per cent. The main factor which led to a higher bond rate for the GCHQ bond was movement on the bond market. Other factors, including the market's projection of project risk, also affected the rate.