The first UK PFI transaction in the IT sector closed on January 17, 2000. The project involves the provision of IT and telecoms infrastructure to UK customs offices at home and abroad. With a total cost estimated at £500 million over the next 10 years, a £60 million credit facility was put together for the project company.

Lead arranger was Bank of Tokyo-Mitsubishi. Bank of Scotland and Dai-Ichi Kangyo Bank joined the deal as co-arrangers. The facility was priced at 110 basis points over Libor and holds a 10-year tenor.

In September 1999 an international consortium made of ICL, Racal Electronics, Mitsubishi Corporation and Microsoft won the concession by the UK's Customs & Excise.

Once completed, the new infrastructure will provide 24,000 staff at Customs & Excise with an advanced desktop IT system to enhance the efficiency of the department's key revenue, anti-fraud, anti-drugs and trade statistics activities. It will also improve the quality of service provided to businesses and travellers and increase the department's overall communication with other departments within the government.

John Bamforth, deputy head of structured finance at Bank of Tokyo Mitsubishi in London says: ?Despite the small amount, the deal was certainly a challenge. There was an initial negative reaction in the banking community to a deal combining PFI and IT. But attitudes changed because of the solidity of the contract awarded to the ICL-led consortium.

Herbert Smith acted as legal adviser to the lenders. Carolanne Cunningham, solicitor at Herbert Smith in London says: "The key challenge facing parties involved in this deal has been the ability to adapt limited recourse financing techniques to the unique attributes of IT assets. Balancing the characteristics of conventional project finance to the business requirements of IT service providers tested the ability of the lead arranger in the transaction. The financiers showed a noticeable degree of flexibility and practicality in relation to issues such as adjusting the perception of conventional security packages and payment mechanisms to IT."