1/100th of 1 per cent. A measure normally used in the statement of interest rates; 100 basis points equals 1 per cent. | |
Cover ratios are standard tools used in the financial appraisal of projects. The ratios measure the extent to which current and future liabilities to lenders are covered by available cash flows. | |
A process whereby the financing for a project is obtained after a competition involving several potential funders rather than being provided by an incumbent funder retained by the project consortium appointed as preferred bidder. | |
Instruments used by the consortium company to manage the risk of variations in future rates. In most cases, the company will choose to fix its future interest rate thereby providing it with surety about what its financing charges will be. | |
An additional amount that a bank charges on a commercial loan over and above its own cost of providing the loan. The margin serves to provide the bank both with a profit and compensation against the risk of not having the loan repaid. The extent of the margin reflects the risks inherent in providing a loan to a particular project. LIBOR plus one per cent, for example, means an interest margin of one per cent above general commercial borrowing rates as represented by the London Interbank Offered Rate (LIBOR). A high margin means that lending to the project is perceived by funders as being relatively risky. | |
The discount rate which results in the discounted project cashflows, including both payments and receipts, totalling to zero. It is the standard measure which the public sector has used to compare the returns expected by shareholders of consortia bidding for contracts. It is not an indication of the future year on year rate of annual returns which private sector investors anticipate realising from the project but reflects the time value of when benefits are received. | |
London Interbank Offered rate. The interest rate at which banks will lend to each other. | |
The fees payable to the monoline insurer (see below). | |
An institution that insures investors in the bonds guaranteeing that they will be paid. The effect of this is to enhance the credit rating of the bond to that of the Monoline Insurer, typically AAA, the highest rating, which reduces the cost of the bond to the bond issuer. | |
The debt that is ranked highest in terms of claims on project cashflows and therefore carries the lowest risk that it will not be repaid. | |
Debt over which senior debt takes priority. In the event of bankruptcy, subordinated debt lenders receive payment only after senior debt is paid off in full. | |
An arrangement whereby a loan which has a variable rate of interest (which will change in relation to market rates of interest) is exchanged for a loan which has a fixed rate of interest. | |
The interest rate at which a swap (see above) is affected. |