1.2 In December 1995 the Prison Service awarded FPSL the contract to build a new prison at Fazakerley, near Liverpool, and to operate and maintain it for a period of 25 years. The Prison Service estimated that the discounted cost of the contract over this period would be£247 million in1995 prices. The finance for this project comprised bank borrowings and a mixture of subordinated debt6 and equity capital investedbyGroup4 and Tarmac who were shareholders in FPSL and the main contractors on the project. Group4 and Tarmac expected to receive a total of £17.5 million in discounted values in interest and dividends on their investment in the project.
1.3 The Fazakerley prison opened in December 1997, five months ahead of schedule. While, as with all new prisons on opening, not everything went to plan, Prison Service confidence in the prison was such that during the first year of operations the prison was requested to hold more inmates than its designed capacity, to help the Service manage overcrowding in the North West of England. The Service regards the prison's ability to operate with a higher than planned prison population during the first year of operations as commendable for a newly opened local prison.
1.4 By December 1999, the expected returns to the shareholders of FPSL had increased by £14.1 million (Figure 2, page 4). £3.4 million of these increased benefits arose primarily because the Fazakerley prison came into operation five months ahead of schedule and because FPSL has achieved savings on its expected construction and commissioning costs.
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6 Subordinated debt is a loan which will rank behind the principal borrowings of a company for repayment on the occurrence of certain events (such as insolvency).