Ashursts balances PFI deal by avoiding banks

Ashurst Morris Crisp's head of projects Mark Elsey (right), led a team advising UK Detention Services (UKDS), on avoiding bank financing for the construction and maintenance under the Private Finance Initiative (PFI) of a £55m prison at Agecroft in Salford.

The deal is the first major PFI infrastructure deal not to bring in bank financiers, who need their own set of lawyers and legal documentation and tend to press hard for fixed start dates, revenue payments and contract length to ensure they get their money back.

Instead UKDS will be funded by the company balance sheets of its own shareholders, Corrections Corporation of America (CCA) and European company Sodexho Alliance.

Once the prison is built, CCA will get its money back by selling it to a US real estate investment trust. The trust will lease the prison back to a CCA prison management subsidiary which is expecting to be paid about £200m by the government over the duration of its contract.

Elsey said that using “balance sheet” funding rather than lenders also gave the project company more scope for changes in the project as well as control over any payouts from their insurers should something go wrong.

The Prison Service's lawyer, David Winfield of Freshfields, had to do some of the work usually done by the lenders' lawyers. The Prison Service had to check, in particular, the creditworthiness of UKDS's shareholders.