European Infrastructure Finance Yearbook - Investing In Bonds ...

PROJECT FINANCE/PUBLIC-PRIVATE PARTNERSHIPS
140 ■ NOVEMBER 2007
The liquidity facility is revolving and pari passu
with the senior debt in all respects. The facility is
fully committed, and valid requests must be
honored by the lender unless there is a liquidity
facility event of default outstanding. The facility
events of default are limited to the following:
• Nonpayment of principal and interest on an
outstanding liquidity loan.
• Each liquidity loan has a term of six months
only. If the loan is not repaid within the
term, a new request for an additional
liquidity loan may be made by ProjectCo.
The lenders must make a new liquidity loan
available to repay the previous loan and
meet any additional liquidity shortfalls so
long as the maximum commitment of the
facility is not exceeded.
• ProjectCo insolvency.
• It becoming illegal for ProjectCo to make or
receive payments under the liquidity facility.
• If the bonds are accelerated or the bonds are
made immediately due and payable under
the terms of the collateral deed by the
controlling creditor.
The facility may be drawn to service senior
liabilities, including liquidity facility payments.
With written permission from the controlling
creditor, however, it may also be used to fund
specified operating costs as defined by the
accounts agreement. This applies only to
operational costs that are senior to senior debt
liabilities in the operational cash waterfall. The
liquidity facility may not be used to fund
increases in capital costs. The distribution
covenant will be triggered if any liquidity loans
are outstanding.
The facility is available from the start of the
concession until replaced by the earlier of an
equivalent cash debt service reserve account, or
the end of the concession. Under the base case, a
cash reserve is to be built up toward the end of
the concession to replace the liquidity facility.
During this period, a full six-month debt service
reserve is available at all times, which will be
based on a part cash/part liquidity facility reserve.
Standard & Poor’s project finance ratings
approach does not address the potential for
changes in law within its ratings methodology.
The U.K. PFI standard form contract specifically
addresses the allocation of risk in relation to
potential future changes in law. In this project, the
STANDARD & POOR’S EUROPEAN INFRASTRUCTURE FINANCE YEARBOOK
standard risk allocation for change in law
is adopted.
The Trusts will assume the risk of
discriminatory and NHS-specific changes in law
in terms of compensation and extensions to
construction completion dates.
ProjectCo has shared general change-in-law risk
up to a maximum liability of 3.13% of the capital
cost of the project during the operational period.
During the construction period, general changein-law
risk has been passed in full to the
construction contractor. Change in law in relation
to medical equipment services is treated separately
from this regime and is fully borne by the relevant
technology contractor.
This project has a facility available to meet
possible change-in-law requirements during the
operational period of the concession. The changein-law
facility is pari passu to the senior debt and
the facility is available from the start of the
concession until the time of the mandatory
drawdown--scheduled to occur toward the end of
the concession--of any undrawn proceeds, which
are deposited in the change-in-law account. Any
drawings used to fund valid changes in law before
the mandatory drawdown are interest only until
then and the facility is subsequently repaid under
a predetermined schedule.
With prior written permission from the
controlling creditor, the facility may also be used
to fund operational or finance costs. If it is used
in this manner, any drawings must be repaid in
full (principal and interest) under a cash sweep,
and the distribution covenant will be triggered
until full repayment of the facility has been made.
The swap facility is provided under a standard
form ISDA master agreement with a projectspecific
schedule. Standard & Poor’s has reviewed
the details of this agreement and confirmed that it
complies with the criteria.
Recovery analysis
The senior secured debt and the facilities have
each been assigned preliminary recovery ratings of
‘2’, indicating Standard & Poor’s expectation of
substantial recovery of principal (70%-90%) in
the event of a payment default. To date, however,
there has been limited experience regarding
default or loss in this sector.
The senior debt facilities benefit from a strong
security package, covenants, and contractual
features for compensation on termination that are