Prudential Regulation Authority Rulebook

1.

The requirements that must be met for an investment in an infrastructure entity to constitute a qualifying infrastructure investment are as follows:

1. (1) the cash-flows generated by the infrastructure assets allow for all financial obligations to be met under sustained stresses that are relevant for the risks of the project;
2. (2) the cash-flows that the infrastructure entity generates for debt providers and equity investors are predictable;
3. (3) the infrastructure assets and infrastructure entity are governed by a regulatory or contractual framework that provides debt providers and equity investors with a high degree of protection including the following:
   1. (a) the contractual framework must include provisions that effectively protect debt providers and equity investors against losses resulting from the termination of the project by the party which agrees to purchase the goods or services provided by the infrastructure project, unless one of the following requirements is met:
      1. (i) the revenues of the infrastructure entity are funded by payments from a large number of users; or
      2. (ii) the revenues are subject to a rate-of-return regulation; and
   2. (b) the infrastructure entity has sufficient reserve funds or other financial arrangements to cover the contingency funding and working capital requirements of the project.
4. (4) where investments are in bonds or loans, this contractual framework must also include the following:
   1. (a) debt providers have security or the benefit of security to the extent permitted by applicable law in all assets and contracts that are critical to the operation of the project;
   2. (b) the use of net operating cash-flows after mandatory payments from the project for purposes other than servicing debt obligations is restricted; and
   3. (c) restrictions on activities that may be detrimental to debt providers, including that new debt cannot be issued without the consent of existing debt providers in the form agreed with them, unless such new debt issuance is permitted under the documentation for the existing debt;
5. (5) notwithstanding (4)(a), for investments in bonds or loans, where a firm can demonstrate that security in all assets and contracts is not essential for debt providers to effectively protect or recover the vast majority of their investment, other security mechanisms may be used, provided they comprise at least one of the following:
   1. (a) pledge of shares;
   2. (b) step-in rights;
   3. (c) lien over bank accounts;
   4. (d) control over cash-flows; or
   5. (e) provisions for assignment of contracts;
6. (6) where investments are in bonds or loans, the firm is able to hold the investment to maturity and, subject to 3D2.3, has notified the PRA of this in writing before it treats an investment as a qualifying infrastructure investment;
7. (7) where investments are in bonds or loans for which a credit assessment by a nominated external credit assessment institution is not available, the investment instrument and other pari passu instruments are senior to all other claims other than statutory claims and claims from liquidity facility providers, trustees and derivatives counterparties; and
8. (8) where investments are in equities, or bonds or loans for which a credit assessment by a nominated external credit assessment institution is not available, the following criteria are met:
   1. (a) the infrastructure assets and infrastructure entity are located in the OECD;
   2. (b) where the infrastructure project is in the construction phase the following criteria must be fulfilled by the equity investor, or where there is more than one equity investor, the following criteria must be fulfilled by a group of equity investors as a whole:
      1. (i) the equity investors have a history of successfully overseeing infrastructure projects and the relevant expertise;
      2. (ii) the equity investors have a low risk of default, or there is a low risk of material losses for the infrastructure entity as a result of their default; and
      3. (iii) the equity investors are incentivised to protect the interests of investors;
   3. (c) where there are construction risks, safeguards exist to ensure completion of the project according to the agreed specification, budget or completion date;
   4. (d) where operating risks are material, they are properly managed;
   5. (e) the infrastructure entity uses tested technology and design;
   6. (f) the capital structure of the infrastructure entity allows it to service its debt;
   7. (g) the refinancing risk for the infrastructure entity is low; and
   8. (h) the infrastructure entity uses derivatives only for risk-mitigation purposes.

2.

For the purposes of 3D2.1(2), a firm must not treat the cash-flows generated for debt providers and equity investors as predictable unless all except an immaterial part of the revenues satisfy the following requirements:

1. (1) one of the following criteria is met:
   1. (a) the revenues are availability-based;
   2. (b) the revenues are subject to a rate-of-return regulation;
   3. (c) the revenues are subject to a take-or-pay contract; or
   4. (d) the level of output or the usage and the price must independently meet one of the following criteria:
      1. (i) it is regulated;
      2. (ii) it is contractually fixed; or
      3. (iii) it is sufficiently predictable as a result of low demand risk; and
2. (2) where the revenues of the infrastructure entity are not funded by payments from a large number of users, the party which agrees to purchase the goods or services provided by the infrastructure project entity must be one of the following:
   1. (a) an entity listed in 3D24.2;
   2. (b) a body listed in 3D1;
   3. (c) an entity with an external credit assessment institution rating with a credit quality step of at least 3; or
   4. (d) an entity that is replaceable without a significant change in the level and timing of revenues.
   5.  

3.

Where a firm treated an investment as a qualifying infrastructure investment in accordance with Article 164a of Commission Delegated Regulation (EU) 2015/35 immediately before 31 December 2024 and from 31 December 2024 treats that investment as a qualifying infrastructure investment, the firm must notify in writing the PRA by 31 January 2025.