Is Prudential Borrowing cheaper than Private Finance?
Interest rates on loans from the Public Works Loan Board (PWLB) are generally set to be a small margin (e.g. up to 10-30 base points) above the cost at which the Government itself can borrow in the gilts market, over comparable maturities. Prudential Borrowings from private sector sources (e.g. commercial banks or bond markets) will only be considered prudential to the extent their costs are (broadly) no greater than the PWLB alternative. One significant difference between PWLB and private markets is the availability of grace periods (on private sector loans) before repayments of loan principal commence this may be particularly relevant where an asset in procurement has a long construction period. Since the Debt Management Office, which disburses PWLB loans, carries out no (project specific) due diligence on the uses to which its loans will be put (because it takes no risk on the performance of the underlying project assets), its arrangement fee (as well as its margins) are also much l
