Termination liabilities may increase as a result of a refinancing in a number of ways

2.24  Termination payments are only contingent liabilities for a department upon the event of a refinancing, but the level of those liabilities may increase if:

■  the refinancing includes an extension in the period over which loans are repaid, which results in a higher level of debt outstanding for a longer period of the contract;

■  the refinancing involves the consortium borrowing more money, for example, to repay the shareholders' subordinated loans or other investments;

■  the refinancing involves the release of cash reserves which would otherwise have been used to reduce the level of outstanding debt upon a termination occurring; or

■  the refinancing involves the use of additional financial instruments to manage interest rate risk on which there are potential penalties to pay if these are broken early.

2.25  The July 1999 Treasury guidance cautions against financial arrangements by a consortium which increase a department's termination liabilities and either:

Treasury guidance reference