UK to save millions in debt refinancing of M25 project
Britain is set to benefit from an up to £1.3bn refinancing of debt linked to one of the largest private finance initiatives, a scheme to widen the M25.
The owners of the circa £2bn project have hired HSBC, Barclays and Lloyds as bookrunners on a public bond refinancing of the project’s commercial bank debt.
The interest rate on the bond, due to be issued next month, is expected to be just under 1pc, well below the figure of around 3pc on the existing debt.
As a result, the UK will benefit to the tune of tens of millions of pounds over the course of the 30-year project in reduced debt service payments by the Government to the project’s owners.
One source close to the deal said the savings to the UK will be slightly less than the £100m forecast by the National Audit Office in 2010.
The original funding for the project was raised during the financial crisis in 2009. Banks were less willing to lend at the time, which pushed up the project’s cost of debt. Since then, the cost of borrowing has dropped sharply.
The project’s sponsors, including UK infrastructure funds Equitix and Dalmore, are also expected to profit from having reduced debt service costs. The amount of commercial bank debt being refinanced totals £1bn.
However, it is understood around £280m of extra debt may also have to be raised due to an adverse interest rate swap agreement linked to the project. The complex derivative involves the sponsors having to pay a high fixed rate of interest, around 4.6pc, while the swap counterparties pay a much lower rate linked to average Libor rates.
In a refinancing, the sponsors have to either pay in one lump sum the difference between the two – the £280m – or turn this so-called negative mark to market into long term debt.