Saving money, gaining control of PFI

Local Partnerships helped Kirklees Council complete a refinancing of their Excellent Homes for Life social housing PFI project. Following initial engagement to help the Council assess the potential to refinance, Local Partnerships took on the role of delivery partner for the Council to manage the process on their behalf, fully utilising our experience and expertise on commercial and financial matters relating to PFI / PPP projects. As a result, £1.9 million has been saved over the term of the project with an immediate cash rebate of £600k.

A refinancing is where a PFI project company can take advantage of an improvement in the terms and conditions of its loans to make savings. The main driver of recent refinancing activity has been that lenders credit margins have fallen sufficiently from the levels seen in 2008-2010, following the credit crunch, to allow a refinancing to generate a sufficient saving to make the process worthwhile. By engaging with the lenders, or inviting in new ones, the PFI project company is able to reset margins to the new lower levels and the subsequent savings in financing costs are shared between the project company shareholders and the public sector sponsor.

On the Kirklees project, Local Partnerships worked directly with the project company and its advisers to ensure the processes and methodologies used for the refinancing were appropriate and increased the chances of a successful outcome. The project company, its lenders, and its shareholders also gained confidence in the Council’s ability to proceed with the transaction within acceptable timescales and deal with any issues swiftly by drawing on our support.

The capacity of the current lending market to refinance all suitable projects at the credit margins seen on this deal suggests to us that the window of opportunity for refinancing may be short lived. In a market where several PFI projects are being lined up for refinancing, the public sector sponsor needs to act and demonstrate a willingness and ability to engage to ensure that lenders and equity holders choose to work on that particular project and not focus their capacity somewhere else. We help authorities consider the potential to refinance their project and how best to engage with the project company to extract value where possible.