3.11 It is a normal business strategy for equity investors and debt providers with a portfolio of interests to seek ways of improving the financing of the portfolio. An example of this which has taken place in the PFI sector is that the Dublin based financial institution, DEPFA, created a special purpose vehicle in order to structure what is known as a synthetic securitisation of 24 of its portfolio of PFI loans. This involved transferring the risks inherent in the loans to other financial institutions. DEPFA was then able to reduce the capital it had to set aside under banking regulations. As a result, DEPFA was able to enhance its return on capital on its PFI debt portfolio by increasing its lending base. The Treasury has accepted that since such securitisations are external to the PFI contracts and at a lender's corporate level, they are not to be included in the gain sharing arrangements. It is possible that other financial investors or debt providers may have securitised some or all of their PFI exposure as this is a common and accepted means of portfolio management.
3.12 In addition to possibly laying off the risk of financing a PFI portfolio, it is also theoretically possible that equity investors with a portfolio of PFI projects, such as the SMFs, could seek to improve the financing terms for their portfolio as a whole rather than refinancing individual projects on a project by project basis. In order to do so, they would have to be the primary equity holder in all of the projects within the portfolio or have the agreement of the other equity holders. If it were possible to refinance the portfolio without requiring authority permission (which would, for example, be needed for increases to termination liabilities) then any gains may not have to be shared with the government. The Treasury notes that its guidance limits the opportunities for portfolio refinancings where there would be no gain sharing with the public sector. Although we were informed by some SMFs that portfolio refinancing without gain sharing was an option open to them, neither we nor the Treasury are aware of any such transactions having been completed. One SMF told us that it would rather not go against the spirit of the Code which generally expects the sharing of refinancing gains.