The provisions of the Application Note do not alter or replace any other existing guidance. The Application Note is designed to clarify interpretation and assist Authorities in applying guidance rigorously and consistently. It concentrates on four key issues:
■ the implications of increased termination liabilities should be a key focus for Authority evaluation. The Authority's starting point for value for money analysis of a refinancing involving increased termination liabilities should be to compare the proposal to a refinancing without increased termination liabilities. The difference in the authority's gain-share between the two scenarios can then be evaluated against the increase in potential liabilities. The evaluation should also consider the time profile of potential liabilities;
■ evaluating the effects of higher levels of senior debt on the drivers of value for money in the original project including the extent and profile of remaining shareholder incentives over the life of the contract; the effects of a new financial structure on the financial flexibility of the contractor to manage its routine risks and the ability of the contractor to withstand major project risks;
■ cautioning Authorities that changes to the profile or indexation of the Unitary Charge payments should only be considered when clear value for money grounds exist. Such changes are separate to the refinancing and should only be considered because the new regime will fit the Authorities needs more closely not because such changes would of themselves increase the size of the gain from a refinancing;
■ recommending that Authorities do not extend the original contract length unless there is clear evidence to the contrary and doing so is justified on a separate stand alone basis. Increasing the size of the refinancing gain by extending the contract length and thereby easing any possible affordability constraint cannot be justified as an end in itself.