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Treasury Update to Refinancing Provisions

On the 27th of April 2012, HM Treasury published an update to the Standardisation of PFI Contracts version 4 (“SoPC4”) in relation to Refinancing.

SoPC4 contains guidance and drafting to be used by any local authority (an “Authority”) procuring a PFI project. The update contains a number of amendments to the Refinancing provisions contained within SoPC4 which HM Treasury states are made “in the light of the current state of the financing market".

A Refinancing of the PFI project can be instigated by either the private sector contractor (the “Contractor”) or by the Authority and will normally constitute a material change to the financial and economic structure of the project in order to make financial gains. On a Refinancing the Authority is entitled to a share of any gains made and these latest amendments deal with how such gains should be shared between the Contractor and the Authority. In particular, the amendments:

• ensure that where there is a reduction in funder margins arising as a result of a Refinancing, 90% of the gain arising from that reduction will be paid to the Authority; and
• clarify the sharing arrangements between the Contractor and the Authority of any other gain made by the Refinancing and the allocation of the costs of a Refinancing.

These amendments are mandatory for all PFI projects that have not yet reached financial close.