BIM64373 - Private finance initiative (PFI): refinancing gains: interest: letter: appendix

The following is the text of the appendix to the letter of 8 October 2003 Tax (see BIM64372), from CT & VAT’s predecessor (Revenue Policy Business Tax), to the PFI working group

PFI refinancing - structure paper

1. Introduction - existing structure

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2. Subscription date - interim structure

A new company (HoldCo) is set up by the shareholders who subscribe for share capital in HoldCo as follows:

Outside the PFI group, two new companies, Parent and its subsidiary Issuer, are set up. GroupCo has an option to buy Issuer from Parent any time after the issue date for the par value of Issuer's shares. Parent has an option to sell Issuer to GroupCo on similar terms if certain events take place.

The structure is then:

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3. Issue date

3.1.The structure as at the issue date will be as follows:

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3.2 On the issue date:

3.2.1 Issuer issues bonds for £150m and will receive the bond proceeds net of the managers' fees and commissions.

3.2.2 Issuer advances the net bond proceeds of £145 million (after Issuer’s expenses etc of £5m). The terms of the advance match the terms of the bond although the interest rate charged is such that Issuer makes a small turn.

3.2.3 ProjectCo repays the existing bank loans of £100 million.

3.2.4 ProjectCo lends GroupCo £45 million. Semi-annual interest at a commercial rate, such that ProjectCo makes a small turn, is payable.

3.2.5 GroupCo lends HoldCo £45 million, which HoldCo uses to acquire shares in GroupCo from the shareholders. (The GroupCo shares have a market value of £45 million.) Semi-annual interest at a commercial rate, such that GroupCo makes a small turn, is payable.

3.3 The market value of GroupCo - the principal asset of which is ProjectCo - is £45m and this will enable appropriate amounts of cash to be paid to the shareholders and to the public sector (representing their shares of the refinancing gain) when GroupCo is sold.

4. Refinancing is effected - closing structure

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