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Strategy Delivery and Commissioning

78.6. Financial Restructuring

In troubled projects, financial restructuring may be considered. A method of dealing with a project in financial difficulty is for the PPP contract to be auctioned by the government, whereby a new bidder will pay the actual worth of the project and then continue to provide the service. This is consistent with the risk allocation to the private partner and is the preferred method of dealing with such projects. However, in less mature PPP markets, there is a risk that there will be no buyers willing or able to take over the project.

Other tools employed for financial restructuring may include amendment to the finance documents or conversion of debt to equity. These are managed within the private partner, and government involvement is limited to approvals of the changes made in the restructuring, especially where there may be change of control provisions in the PPP contract.

Finance document amendments may include extended maturity dates, revised interest rates, and amended financial covenants, among others. As an example, in the San Joaquin Hills toll road transaction in the United States, $2.06 billion in toll revenue bonds were restructured by increasing maturity dates, revising coverage ratios (debt service), and reducing annual debt service amounts[26]. Debt restructurings were also implemented for the Dulles Greenway (Virginia) and Southern Connector (South Carolina) projects.

[26] Primoff, M.G. and Hampton, N., Kaye Scholer 2013, In: Developing a Framework for Renegotiation of PPP Contracts, Ministry of Finance, Government of India: Secrets of Successful Restructuring. LLP article, Infrastructure Investor.

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