While it should be left to the private party to initiate refinancing, there are benefits from the contract director being aware of the refinancing intentions of their private party counterparts.
In order to be ready to deal with refinancing proposals, the contract director should have a basic understanding of the following aspects of the project:
• the current financing arrangements and the financial agreements that govern them;
• the current financial model;
• how to calculate debt cover ratios for their projects, and the existing value of those ratios; and
• the circumstances in which refinancing needs approval (usually all); and
• the provisions for calculating and sharing refinancing gains or losses under the project deed and related project contracts.
Refinancing of a Partnerships Victoria project is one way in which both the government party and the private party can share in the benefits of a successful project. Government parties should therefore be receptive to refinancing proposals from the private party. There are significant technical financial issues to be dealt with in a refinancing, so preparing in advance is an advantage. Importantly, and consistent with recent project deeds, the Partnerships Victoria standard project deed requires that the private party must notify the State regarding its proposed refinancing strategy, at least 60 business days prior to formally requesting the State's consent to a refinancing.
The Partnerships Victoria team at DTF must be consulted when considering any proposal for a refinancing event, and will lead assessing and negotiating the refinancing, in close consultation with the contract director.
Assessing and negotiating a refinancing is a resource-intensive activity requiring suitably qualified senior resources and decision makers, as well as increased interaction with professional advisers. The government party (including DTF), should ensure that such resources are in place when a refinancing proposal is received, to achieve the optimal outcome for the State.
The government party should engage experienced legal and commercial advisers (and where feasible, should also consider using TCV) to assist them to understand the full implications of any refinancing proposal, to advise them in any associated negotiations, and to check that the refinancing gain or loss has been calculated correctly.