In the event of a scheduled refinancing, the private party will usually be contractually required to prepare a refinancing strategy to guide the refinancing event, and will be required to provide a copy of the strategy to the government party.
The project deed may also require the private party to prepare a refinancing strategy for any unscheduled refinancing. Even if the project deed does not require this, it is recommended that contract directors request a refinancing strategy document from the private party.
The refinancing strategy document should describe the private party's plans for managing both volume risk (underwriting) and pricing risk (refinancing gains and losses).
At a minimum, the refinancing strategy should include:
• an audited financial model relating to the refinance;
• details of assumptions used in the financial model;
• the key aspects of the proposed refinancing, including establishment fees, debt margins, principal amortisation profile, debt service reserve requirements and any associated interest rate or foreign currency hedging;
• a comparison with any refinancing assumed within the original financial model;
• a certificate from the auditors of the financial model;
• the amount of the proposed refinancing gain or loss;
• details of any changes in amounts payable by the State under the project deed as a consequence of the refinancing;
• fees payable to financial advisers/lenders;
• a description of proposed changes to the private party's obligations to its equity investors;
• copies of proposed changes to the existing financial agreements;
• drafts of any new financial agreements; and
• a program detailing the timing of all key milestones in the refinancing request and consent process, including (but not limited to):
- submission of all draft documentation to the State;
- clarification meetings between the private and government parties, as required;
- provision of in-principle agreement by the State to the draft proposal and documentation;
- formal submission of the private party's refinancing consent request;
- provision of any updated documentation, as may be required;
- date by which the State's consent is due under the relevant project deed;
- contract execution; and
The refinancing strategy should be provided to the government party sufficiently in advance of the private party's formal consent request submission to enable the State to consider the impact of the refinancing. If the project deed does not specify a time for providing the refinancing strategy, the contract director should request that such a strategy be provided by the private party at least 60 business days prior to any proposed refinancing.