If a PPP Project is being corporate financed and there is no prospect of a refinancing/introduction of senior debt post commencement, then logically various adjustments should be made to the PPP Contract terms to reflect the structure, parties and documentation involved. These will include:
(a) References and provisions relating to financing documents (e.g. Senior Financing Documents) - there will not be Senior Finance Documents as in a project financing context. Advice will be needed as to the extent that relevant definitions and provisions should be adapted to take into account the corporate finance structure and any credit support required (such as parent guarantees). Some of these are explored further below.
(b) References and provisions relating to relevant parties - e.g. there will not be any third party lenders.
(c) Pricing adjustment provisions - PPP Contracts typically provide for an adjustment to pricing in certain circumstances (e.g. to cover the cost of implementing a qualifying change in law or the cost of certain delay events which are not the Private Partner's fault). In a project financing, the adjustment may be measured by reference to restoring senior debt cover ratios or Equity IRR. As there is no senior debt, this will need to be adapted (e.g. by providing for a lump sum payment(s) or using other criteria as a reference instead).
(d) Insurance provisions - in a corporate financing, insurance cover may be provided via corporate group policy arrangements as opposed to by project-specific policies. This may feed through to a cheaper bid price but will also mean that the type of insurance provisions typically seen in a project financed project may need adapting as the policies and premia will not necessarily be project-specific nor the terms as transparent. Advice will be needed to ensure the Contracting Authority has equivalent (or satisfactory) protection in terms of uninsurability, placing of insurances, size of deductibles, indemnity cover, endorsements, notice of policy changes, loss payee provisions and premium risk sharing. In addition, as there are no third party lenders, there should be no need to have a threshold above which insurance proceeds are applied against debt as opposed to reinstatement of the PPP Project.
(e) Refinancing - these provisions should be tailored appropriately to reflect the fact that there will not be any third party financing (or none being planned) but also to cater for a possible future change in financing which should require Contracting Authority consent and which may give rise to a form of refinancing gain (e.g. from a corporate financing to a project financing). If this is envisaged at Financial Close then relevant amendments should be agreed as a schedule to the PPP Contract - if not, the changes and the sharing of the refinancing gain will need to be negotiated as part of the Contracting Authority consent process.
(f) Termination payments - in a corporate financed PPP Project with no third party debt the funding is being provided by the parent group and is in principle equity. However, it is likely that the principles relating to compensation set out in Section 4, Termination Payments will still need to apply in order for the parent group to be prepared to commit the level of funding required for the PPP Project. Appropriate adjustment to the calculation formulae will be required to reflect that there is no Senior Debt but instead just equity. See Section 10.3.
As mentioned in Section 10.2.7, there is no need for a Direct Agreement if there are no third party lenders. The Contracting Authority should consider whether any alternative step-in/direct agreement-type contracts with other parties/parent companies might be appropriate in the proposed structure, including in relation to ensuring oversight of corporate documentation and any joint and several arrangements.