Partnerships Victoria projects are financed by the private party through a mix of debt (in the form of bank loans or bond finance) provided by lenders and equity (also known as risk capital).
The term 'refinancing' refers to any changes in a projects debt finance arrangements, related to the; type, amount, pricing, tenor, terms for payment, or repayment, or hedging of financial accommodation.
The private party is responsible for refinancing, however ultimately if the private party is unable to secure replacement financing or is unable to service its debt, under the provisions of the project deed this may trigger a default event that will usually give rights to the government party to act to ensure the project's viability.
As refinancing has the potential to change a Partnerships Victoria project's agreed risk allocation, it requires advance government party consent (although the consent rights may differ according to the materiality of the refinancing). Contractual provisions relating to refinancing have evolved over time, in response to changing financial market conditions. The original financial structure of a Partnerships Victoria project (which reflects the market conditions during the procurement phase) will significantly influence the likelihood of refinancing occurring, and the potential issues that may arise. For example, where long-term debt financing is procured for the full project term, refinancing will not be required. As such, contract directors must carefully examine the refinancing provisions in each project deed, understand the project's financial structure, and consult with DTF in relation to any proposed refinancing.