2.13 Once PFI projects are up and running, and the project risk has been managed successfully, it may be possible for the private sector to refinance the debt incurred in providing infrastructure or services under PFI contracts at more advantageous rates. When PRIME was negotiated, no arrangements for sharing refinancing gains were included in the contract. In October 2002, the Office of Government Commerce launched a voluntary code of practice for early PFI deals, whereby departments could seek to receive 30 per cent of refinancing gains on deals where the contract did not include an explicit sharing arrangement. The Department negotiated a 30:70 sharing of any refinancing gains on PRIME. In addition, the Department negotiated a sharing of a blended percentage of any gains (circa 39 per cent) from refinancing the combined estate, after the first anniversary of the expansion date, and a 90 per cent share of any qualifying gain occurring within the first 12 months of the contract expansion date.
2.14 The banks indicated to Land Securities Trillium that debt finance would be more expensive for the PRIME expansion estate than for the whole of the expanded estate. The PRIME deal had a strong five year track record whereas the expansion did not, and was a less attractive package than PRIME on which to raise finance. Land Securities Trillium accordingly decided to replace the funding it had raised for the PRIME deal with funding for the whole expanded deal. It held a funding competition to raise £280 million to cover the refinancing of the PRIME estate and the acquisition of the PRIME expansion estate, achieved through a locked-in fixed term deal over the life of the contract.
2.15 The Department, therefore, received a pricing benefit in Land Securities Trillium seeking new debt funding for the whole of the expanded estate. The transaction did not trigger any re-financing gains because the costs incurred by Land Securities Trillium in breaking the terms of the outstanding PRIME funding negated any notional gain that the new funding package would provide.