Borrowing

The PIP Fund wil not generally use debt to finance Investments at the ‘fund’ level. The General Partner, at its sole discretion, may authorise the use of debt in certain circumstances where a Limited Partner becomes a ‘defaulting partner’ as discussed in Section 9 on page 23 of the prospectus and investment statement of NZSIF.  Otherwise, the PIP Fund may also borrow with the approval of the Advisory Committee.

Private Entities are, however, expected to employ varying levels of Borrowing on a non-recourse basis depending on the nature and risks associated with the cash flows of that Investment. The target Borrowing for any particular asset or Private Entity will depend on the appropriate levels of Borrowing at the time, having regard to facilities available from lenders, financial market conditions and the extent to which the asset’s income streams are availability-based or exposed to market forces.

A Private Entity will typically fund the initial project costs, including construction costs, through a mixture of long-term non-recourse senior debt, subordinated debt and equity. Ideally, senior debt and/or an equity bridging facility is drawn first and equity and subordinated debt are drawn towards the end of the construction phase (which will likely be two-to-three years). Debt financing drawn down during the construction phase is generally structured to be repaid over the term of the Concession from project operating cash flows. As a result, Borrowing levels for a project will therefore generally decline, rather than increase or be maintained, over the term of a Concession.

The PIP Fund has maximum Borrowing levels, measured as the ratio of debt to debt-plus-equity (which should be distinguished from target Borrowing levels). Under the Limited Partnership Agreement, the maximum Borrowing level for a particular Social Infrastructure Asset will range from 65% to 85%, and the exact Borrowing level will depend on the extent of availability-based payments from, and technical risk associated with, that asset.

The maximum Borrowing levels limits set out above can only be exceeded with Advisory Committee approval.