The Cost of Debt for a Project Finance SPV: an Analysis of the Italian Healthcare Sector

Ageing populations require larger healthcare facilities, in spite of growing public budget constraints, inducing to wonder whether we can afford what we increasingly need, accompanying sustainable and careful demography. New healthcare infrastructures, compliant with Eurostat rules, may not be accounted as public debt increasing investments, if financed with PFI, transferring adequate risks to the private counterpart. There is so little wonder that project finance is increasingly popular in countries as Italy. This paper contains original analysis of sources of funding (capital, subordinated and senior debt, together with public grant …), with their timing and risk profile, essential for correct pricing of cost of debt and bankability. Growing spreads due to recessionary credit crunch somewhat offset decreasing interest rates and leverage has unsurprisingly become more expensive and less popular, this being a back-to-the-earth lesson that both practitioners and academics are painfully starting to learn.