The government party will need to be prepared to respond in a timely way to refinancing events. The scope of consent rights will be specified in the project deed. The State is not able to unreasonably withhold consent. In older project deeds, the State usually has the right to withhold consent for an unscheduled refinancing in certain circumstances. In newer project deeds, all refinancings (scheduled and unscheduled) require the State's consent.
There are limited circumstances detailed in the project deed in which the State is able to withhold consent. These circumstances include:
• where the refinancing increases or adversely changes the profile of the risks or liabilities of the State under any project document to which the State is a party without adequate compensation to the State;
• where the terms and conditions of the proposed finance are not on arm's length commercial terms, or are not in accordance with current market practice;
• where the new financing will not be used solely for the project;
• where, in connection with the refinancing, there will be a change in the equity financing of the project; and
• when the new financial arrangements would be disadvantageous to the private party compared with the existing arrangements and the government party considers that the new arrangements will adversely impact the private party's financial health or ability to perform its obligation under the project deed.
In withholding consent to a refinancing, the government party should have a strategy in place for managing the broader market perceptions of this action, to ensure that the refusal to provide consent is not seen by the market as a disincentive to invest in other Partnerships Victoria projects. The government party should be aware that, if a refinancing is necessary (for example, because the initial debt raised for the project was short-term debt and the bid assumed the debt would be refinanced), rather than purely opportunistic (motivated by a desire to take advantage of favourable market conditions), a refusal to provide consent may lead to a default under the private party's financing arrangements unless the grounds on which the State refused consent can be resolved or mitigated.
In the context of rescue refinancing negotiations, the government party should consider what other options are available to the private party to ensure sufficient funds for the project are available if consent is withheld.