IPA publishes final Sonia PFI guidance

Unitary charge should be ‘unaffected’; transition will generally not be classified as a Qualifying Refinancing; authorities recommended to consent to transition in most cases

The UK’s Infrastructure & Projects Authority (IPA) has published its final guidance for PFI contracts transitioning from Libor to Sonia.

According to the document, the unitary charge paid by an authority “should be unaffected” by the transition, “regardless of what the SPV’s new benchmark interest rate is”.

Further, the guidance says the transition will not be treated as a Qualifying Refinancing “as long as the SPV is subject to the same new benchmark interest rate on both its loan and swap arrangements”, so that there is no refinancing gain.

The IPA recommends that authorities should not mandate or direct any particular course of action to the PFI special purpose vehicle, and should not link their consent to the change to “any other commercial issues or disputes”. Meanwhile, the authority should not consent to accepting any additional risks or liabilities resulting from the transition.

The agency also says in most cases authorities are recommended to consent to the transition, and while there may be some advisor fees involved, these should be “minimal” and reimbursed by the SPV.

In August, industry experts warned that more urgency is needed from both the public and private sectors in making the transition from Libor, which comes to an end at the end of this year, to its replacement lending rate, Sonia.

To read the IPA's guidance, click here.