1. We have obtained data on the returns to investors in other comparable PFI building projects which have been refinanced (Figure 1). The data shows that the high rate of return to Octagon's investors following the refinancing of the Norfolk & Norwich University Hospital NHS Trust's PFI contract is in line with the Darent Valley Hospital refinancing where the private sector also substantially increased its borrowings at the time of the refinancing in order to provide additional funds to pay accelerated benefits to the investors.
Figure 1 : Comparison of the returns to Octagon's investors following the refinancing with other PFI refinancings of comparable building projects
Project | Projected internal rate of return (IRR) to investors at contract letting | Projected IRR to investors just before the refinancing | Projected IRR to investors just after the refinancing(note) | Substantial increase in borrowings at time of refinancing | Projected IRR to investors following the refinancing as a multiple of the pre-refinancing IRR |
Norfolk & Norwich hospital | 19% | 16% | 60% | Yes | 3.75 |
Darent Valley Hospital | 21% | 23% | 56% | Yes | 2.44 |
Fazakerley Prison | 13% | 16% | 39% | No | 2.44 |
Ministry of Defence: Joint Services | 18% | Not available | 31% | Yes | 1.72 |
Note: These rates of return are after the sharing of refinancing gains with the public sector. The comparator projects are other early PFI building projects on which the NAO has previously reported which have been refinanced.
Source: National Audit Office, from private sector financial models held by departments