In December last year, the UK government announced details of Private Finance 2 (PF2), the long-heralded revised mechanism for the private financing of infrastructure, intended to replace the Private Finance Initiative (PFI) in future projects.
Having considered the credit implications of these proposals, S&P believes it’s likely that debt service coverage ratios could increase somewhat under PF2 compared with those in current PFI projects. This may lead to higher ratings. At the same time, however, it is possible that the change in the allocation of risks between public and private sectors in PF2 will create new pressures in regard to construction costs and risks, that may have a negative knock-on effect on creditworthiness. Reduced equity returns may reduce the attractiveness of the sector for financial investors.