1.13 The contract for Fazakerley did not give the Prison Service explicit rights to share the benefits of a refinancing by FPSL. It did, however, require the Prison Service to approve any arrangements which resulted either in an increase in the aggregate loan principal of FPSL's borrowings, or which had the primary intention of increasing the termination liabilities of the Prison Service. Termination liabilities are payments which the Prison Service would be required to make to FPSL in the event that the contract was terminated prematurely by either party. They are intended to provide some level of reimbursement to FPSL's lenders in return for surrendering their ownership of the prison to the Service, but at a level which is projected to leave the Service no worse off than if the contract had been fulfilled.9
1.14 There was, however, uncertainty as to what extent the Prison Service needed to approve different aspects of FPSL's refinancing proposals. This uncertainty arose because:
■ although FPSL's initial refinancing proposals suggested that FPSL would not be taking on any new borrowings as part of the refinancing, it was unclear whether the Prison Service's approval would be required to the proposed extension of the loan repayment period. The proposed extension meant that the amount of borrowings outstanding at particular points in time would be higher than had been envisaged in the financing plan FPSL had submitted to the Prison Service when bidding for the contract;
■ as a consequence of extending the loan repayment period (although not necessarily a primary intention), the Prison Service's termination liabilities – which are related to the amounts FPSL owes its lenders – could be viewed as having increased; and
■ the amount to be repaid to FPSL's lenders in the event of termination could increase as a result of costs incurred in breaking the fixed interest rate arrangement which FPSL was planning to include within the terms of the refinancing.
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9 See the National Audit Office report, "The PFI contracts for Bridgend and Fazakerley Prisons" paragraphs 2.43-2.49 (HC253 1997-98)