Project Management Society of Engineers Ireland 2 October
Project Management Society of Engineers Ireland 2 October 2006
Delivering and Financing Infrastructure - Its all about achieving balance Niall Quinn Director
Infrastructure- Achieving the Balance Public Sector objectives Funders objectives Corporate objectives § Deliver Infrastructure § Ensure risk mitigated § Secure pipeline? § Value for money § Security Arrangements § Price risks § Balanced transfer of risk § Ensure appropriate contracts § Achieve appropriate return § Private sector investment § Public Sector Counterparty § Fundable project § Compliance with legislation § Relationship § Partnership § Commercial contracts § Partnership
Investing in Infrastructure Financing Structure The contractor Risk Security Contractual Arrangements Barclays View of the World Partnership Environmental Relationship The Operator Economic Benefits
Balanced Approach to Infrastructure Finance Bond Finance Bank Debt BARCLAYS Risk Managemen t Private Equity
Sample Infrastructure Experience Cork School of Music Barclays arranged over € 15 billion of bank, bond & derivative finance to the Infrastructure sector in the last 12 months Premier Transmission National Toll Roads € 107 million Secured Bonds € 75 M million Term Loan Mandated Lead Arranger Sept 2005 Securitisation of the Scottish – Northern Ireland Gas Pipeline Joint Lead manager March 2005 € 225 million £ 458 million Senior facilities for Terra Firma’s acquisition of East Surrey Holdings plc Underwriter May 2005 Joint Mandated Lead Arranger November 2005 Albertis Scotia Gas Networks Autoroutes du Sud BAA € 1 billion Revolving Credit Facility €confidential Acquisition Facilities supporting the acquisition of Budapest Airport by BAA € 3, 500 million Acquisition and Credit Facilities for Abertis-led acquisition of Sanef Joint Mandated Lead Arranger January 2006 Joint Mandated Lead Arranger December 2005 Arranger July 2005 Terra Firma Phoenix Gas £, 1573 million guaranteed bonds Arranger and Joint bookrunner October 2005
Current Sources of Finance § Senior Debt § Bank debt – Over a dozen project finance banks active in Infrastructure/PPP, plus over 20 banks as participants – Long established, deep market – Used on around 70% of UK PPP – EIB another source
The Cork School of Music § Barclays acted as Mandated Lead Arranger and Underwriter of a € 75 M Loan and additional hedging facility to a Hochtief/Barclays Private Equity consortium. The project involves the construction of a specialist music school in Cork € 75 M million Term Loan Mandated Lead Arranger Sept 2005 § When completed in the summer of 2007 it will provide the Cork School of Music with over 10, 000 m 2 of state-of-the-art facilities including more than 50 teaching/practice studios, a 500 -seater auditorium, a drama theatre and movement room, a professional recording studio, electronic music studio, piano laboratories etc § Key financing issues to be addressed included § Replacement of contractor § Changes in financing market from date of original bid § Planning § Surplus Land
Current Sources of Finance § Senior Debt § Bank debt – Over a dozen project finance banks active in Infrastructure/PPP, plus over 20 banks as participants – Long established, deep market – Used on 70% of UK PPP – EIB another source § Bonds – Around 6 bond houses active as lead arrangers – Generally credit-enhanced by guarantee from monoline insurer – 3 large well established monolines (MBIA, Ambac, FSA) – 4 recent entrants (FGIC, XL Capital, CIFG, Assured) – Require investment grade ratings
Scottish/Northern Ireland Gas Pipeline Premier Transmission § Northern Ireland Energy Holdings was set up as a ‘not for profit’ concern to finance the sale of the Pipeline to Premier Transmission € 107 million Secured Bonds Securitisation of the Scottish – Northern Ireland Gas Pipeline Joint Lead manager March 2005 § Barclays Capital acted as Joint Bookrunner for £ 107 million guaranteed secured bonds for Premier Transmission Limited § The assets of the pipeline had been shadow rated at A 1/A by the rating agencies but a monoline wrap by FGIC gave the deal a AAA rating. § Key financing Issues to be addressed included § § This was the first European securitisation of a natural gas pipeline. Size of deal Management of order book to return highly competitive pricing Need to provide additional facilities for liquidity , debt service reserve account and cost reserve account.
Bank Versus Bond Advantages Bond Financing • Competitive cost if wrapped by monoline insurer Disadvantages • Requirement for rating agency involvement • Longer tenors available • Requirement for production of Offering Circular and roadshow • Fixed rate or index linked • Less cost effective for deals below € 150 m • Credit spread dependent on market conditions • Covenant package required by monolines Bank Financing • More flexible in terms of drawdown and repayment • Floating rate, although can use derivatives to fix • Greater certainty over credit margin • More limited appetite for tenors over 30 years • More cost effective for smaller deals • Syndication process required for larger deals • For syndicated deal, larger number of parties relative to one monoline
Current Sources of Finance § Junior § Subordinated debt – Generally provided by shareholders – Some specialist mezzanine lenders may look at Infrastructure/PPP (Investec, GE Capital, CIT) § Equity – Number of specialist funds which act as financial investors in Infrastructure/PPP , alongside project sponsors (BPE, Equion, Innisfree, Mill Group)
Key Financing Issues § Gearing § Debt Service Reserve Account/Facility § Cover ratios § Term of debt vs. concession length § Repayment profile § Maintenance Reserve Account prefunding and review
Current Financing Terms – It’s a competitive market Financial Element Market Inception 2 years ago Mature Market 80% 92% 5 years 18 months 12 months Average Margin 1. 25% 1% < 0. 8% Cash Debt Cover Ratio 1. 25 x 1. 20 x 1. 15 x Equity Return 18% 15% 13% Gearing Debt Tail (25 year deal) Decline unlikely to continue indefinitely Range of sectors increasing
Will Ireland get the balance right? Challenge Indicators Deliver pipeline Must meet timetables In all sectors Deliver Value for Money Sensible risk allocation Celebrate Success Public Sector Reform Clear approvals process Planning streamlined Destination for Investment Capital Markets Solutions No Reinventing the wheel Evidence of learning from other markets Significant Bidder Interest
Contact Details Niall Quinn Director PFI & Structured Project Finance 47 -48 St Stephens Green Dublin 2 Direct Mobile Fax e-mail 01 618 2662 004477 80 60 77 48 01 662 3141 niall. quinn@barclays. com www. barclays. com Barclays Bank PLC is regulated by the Financial Services Authority
Our Track Record speaks for itself… Barclays Bank Ireland PLC is regulated by the Financial Regulator. Registered Office: 47 -48 St. Stephens Green, Dublin 2. Registered in Ireland. Registered No: 396330.
Disclaimer This presentation has been prepared by Barclays Bank Ireland PLC, herein referred to as Barclays. Any pricing in this report is indicative and is not intended as an offer or solicitation for the purchase or sale of any financial instrument. At this stage, this presentation, any appendices, and any separate attachments do not represent, nor should be construed to represent, an offer of finance on the part of Barclays. Such an offer can only be made following approval of the relevant credit committee and would be subject to, inter alia, full legal, technical and other necessary due diligence. Neither Barclays, nor any officer or employee thereof accepts any liability whatsoever for any direct or consequential loss arising from any use of this publication or its contents. Any securities recommendations made herein may not be suitable for all investors. Past performance is no guarantee of future returns. Any modelling or backtesting data contained in this document is not intended to be a statement as to future performance. Copyright in this report is owned by Barclays (© Barclays Bank PLC, 2004) - no part of this report may be reproduced in any manner without the prior written permission of Barclays Bank Ireland PLC is regulated by the Irish Financial Services Regulatory Authority. Registered Office: 47/48 St. Stephen’s Green, Dublin 2. Registered in Ireland : Registered No. 396330
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