The objective of this study was to provide an update on PFI debt refinancing and the PFI equity market. A key part of the examination of debt refinancing was a consideration of how the new arrangements for the sharing of refinancing gains are working.
An issue analysis approach was adopted to design the scope of the study. After initial research and meetings with public sector stakeholders such as the Treasury (which has responsibility for PFI policy), Partnerships UK (PUK) and other government departments, a series of high-level audit questions were set. The main questions were:
■ Is the voluntary code for sharing debt refinancing gains, where applicable, being applied properly?
■ In what circumstances are gains excluded from the gain sharing provisions of the code?
■ Is the 50/50 sharing for new deals working properly for those recent projects which have undertaken a refinancing?
■ In what ways is the maturing PFI market affecting the use of equity capital in PFI projects?
For each of the top level questions, a subsidiary group of questions was developed to direct our work and analysis. On the questions relating to debt refinancing the subsidiary issues included how the level of debt refinancing gains secured by departments compared with the OGC's expectations when the voluntary code was launched and a consideration of the risks facing authorities from debt refinancings. The examination mainly focussed on trends in debt refinancing activity across government and accordingly did not seek to verify all aspects of the refinancings of individual projects. The examination did, however, include a limited review of how the gains on certain transactions had been calculated.
On the questions relating to the development of the PFI equity market the examination considered the extent to which changes in the equity investors in PFI deals were occurring but did not examine the underlying share transactions as these were between private sector companies and there was no requirement to involve the public sector in these transactions.
The study scope included the collection of data on completed debt refinancings, including information about investors' internal rates of return following refinancing, specifically requested by the Committee of Public Accounts.