The European Union statistics agency Eurostat will adopt a more favourable view on assets securitized under public-private partnerships (PPP), making it possible for EU-governed countries to achieve some level of off-balance sheet treatment for project finance-like securitizations.
In the past, a government's guarantee on a project was booked as long-term debt.
Public-private partnerships (PPP) are often used to finance large infrastructure programs, such as road or hospital construction, allowing a government to reduce its debt burden with repayment directly linked to cash flow generated by the asset.
Up until now, it's primarily been a U.K.-dominated scheme. Over the year, however, there has been growing interest from continental European countries. Italy, for example, has been actively looking into establishing a U.K.-like scheme, where infrastructure projects would be funded 50% through public funds and EU contributions, and 50% would be funded through private funding.
Under the old rules, governments committed to pay the private sector over the long term for these projects. In the case of a securitization, a municipality was required to account for the deal as on-balance sheet debt. Under Eurostat's new ruling, securitizations would now be eligible to be counted as off-balance sheet borrowing if the private partner both bears the construction risk (such as late delivery, standard of construction and technical difficulties) and at least one of either availability (includes service delivery) or demand risk.