Last edited 07 Jan 2016

Funding prospectus for new developments

It is rare in the private sector for the client to provide all the funding for its capital projects, and even in the public sector, the government has sought to use external funding for its capital projects by means of the private finance initiative (PFI) and other initiatives. See funding options for more information.

To solicit competition and attract good rates from institutions or private investors, while reducing due diligence costs, it can be a worthwhile investment to prepare a well-presented funding prospectus setting out the project's financial requirements.

The prospectus will largely draw on the business case for its content but will also address:

  • Intent and summary of the project finances.
  • Risk factors.
  • Management team.
  • Funding criteria including:
  1. Maturity dates.
  2. Payments of interest and fixed or floating rates.
  3. Redemption and options.
  4. Equity participation.
  5. Secured or unsecured ranking (Lenders of loan capital can be given a charge on assets as security, It might be second bite after say a bank or it might be a percentage of assets. Hence the term "ranking").
  6. Survivors options in the event of death of a beneficial owner.
  7. Change in value of underlying assets.

If assistance or advice is required from the consultant team or independent client advisers in the preparation of a funding prospectus, application for grants etc, then this should be made clear in appointing documents as it may not be included in their standard scope of services.

NB The damning 2011 House of Commons Treasury Select Committee report on PFI has found '...that PFI projects are significantly more expensive to fund over the life of a project' and that there is no '...clear evidence of savings and benefits in other areas of PFI projects which are sufficient to offset this significantly higher cost of finance'. It is difficult to see where this leaves private finance initiatives, however as long as PFI continues to allow financing not to appear in government debt figures it is likely to remain a feature of procurement in the UK.

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