If a private party is experiencing significant financial distress, refinancing might be attempted in order to gain temporary relief through renegotiated debt terms.
While this type of 'rescue refinancing' might reduce the likelihood of the private party becoming insolvent, the new debt terms could result in the imposition of longer-term penalties on the private party such as higher debt payments in future periods or tighter restrictions on dividend payments to equity holders. Not only can these factors reduce the return to equity from the project, they can also give rise to many of the risks to the State described above. Again, the refinancing should not leave the State any worse off. However, in the context of rescue refinancing, the appropriate comparison may be whether the State is worse off in comparison to the alternative of a default occurring and the various consequences under the project deed and the financing documents that may flow from that.