UK Guarantees scheme: infrastructure funding made easy

As part of Pillar 3, Upgrading Infrastructure, the Government has confirmed the commitment made in the Autumn Statement to extend the UK Guarantees Scheme until 2026 and evaluate the possibility of providing construction only guarantees under the Scheme. Under the scheme, the Government guarantees debt raised for infrastructure projects of national significance in exchange for a guarantee fee. This makes it sovereign backed debt and allows issuers to achieve near-sovereign pricing, making possible projects which wouldn’t otherwise have been affordable.

The extension of the scheme to 2021 is encouraging news for any business or institution contemplating a major infrastructure scheme. Apart from the pricing, the structure is also very easy for issuers to operate in practice as the Government is the “controlling creditor” and takes any decisions relating to the funding of the project as long as it stands behind the guarantees. This means that issuers can, for example, tap the debt capital markets for the best pricing while still having a single decision maker for any adjustments that need making along the way. It also makes the documentation process very efficient, as the prospectus for the issue focuses on the guarantee rather than the issuer or the project. The possibility of construction only guarantees would enhance the scheme’s usefulness further.

9 projects have benefited from the scheme so far, including two which we advised on; the University of Northampton’s Waterside Campus and Uliving@Gloucestershire’s student accommodation project. The issuers have been a mix of private businesses (Drax, Ineos) and public sector bodies (Greater London Authority, University of Northampton) and deals have covered energy, transport, housing and education with deal size ranging from £8.8 million to £750 million.