EFA to procure body to raise finance for new schools

The body in charge of delivering the government’s £2.4bn Priority School Building Programme is to look to procure a financial “aggregator” to raise private capital for the schools planned under the PF2 element of the programme.

Daniel Rudley, deputy director of private finance at the Education Funding Agency (EFA), told the BFE 2013 conference in London today that his organisation would be able to say more about the plan for the aggregator, which was being worked up with the help of HSBC, “very soon.”

Rudley said the body would raise private finance for the whole school building programme, thereby reducing potential funders’ risks against individual projects by allowing them to invest in a portfolio. He said: “This is about how the programme accesses the private finance it needs. The aggregator removes the need for quite so much scrutiny of individual projects by institutional investors.”

The idea, which replaces the requirement for the senior debt in traditional PFI projects, will be a major change instituted as part of the move to the government’s replacement for the PFI model, PF2. The construction value of the PF2 element of the Priority School Building Programme was cut from £2bn to £1.75bn in the chancellor’s December Autumn Statement.

Rudley said: “The aggregator will sit above the individual projects and assume a certain level of health of the individual projects, and be able to be institutionally rated for investors itself.”

Traditional PFI schemes required each project team to come up with its own blend of equity and debt finance to pay for the construction of the school. Rudley confirmed that PF2 schemes will still require the bidders to provide equity finance, but the aggregator would replace all of the traditional senior debt element. He said: “In the current markets it looks difficult to fund the long term capital requirements of these individual projects. This body will have the ability to raise short term, long term and institutional finance – everything that it might need.”