Tubelines
European Rail PPP Deal of the Year 2002
The race to get the £2.1 billion Tubelines PPP deal ? heavily opposed by Bob Kiley, head of Transport for London (TfL) and Ken Livingstone, mayor of London ? for its Jubilee, Northern Piccadilly, Infraco concession (JNP Infraco) closed by year-end finished with around 12 hours to go on 31 December 2002.
A punctured political football ? $4 million-plus of hot air and home goals in legal fees ? Tubelines is the best and biggest PPP deal yet to be born of compromise. The political wrangling, fuelled by the inability of lead banks and sponsors to get the PPP message across in the media, has forced the UK government to come up with a letter of comfort (not a guarantee) underpinning repayment of 95% of the debt to the banks if the PPP is terminated.And the threat of a further legal challenge by Kiley and Livingstone in the EU has meant government giving additional cover to lenders and equity in the event of a successful appeal. In return, banks are putting up signicant uncovered lending and have already agreed a shared benefits package with London Underground and the sponsors over any future refinancing.Given the public relations storm over the deal (from which no-one has emerged looking good) that Tubelines is going ahead with a reasonably priced debt package is surprising ? that it closed on time is shocking. According to bankers on the project, the haste to close had little to do with end-of-year bonuses and more to do with getting the deal finalised for the sponsors before lending interest dissipated with another legal challenge from Livingstone.Total JNP Infraco/Tubelines project cost is £2.15 billion. Rated triple-B+ by Standard & Poor's, debt service cover ratios on the sponsor base case are 1.6x average and 1.3x minimum. The senior debt-equity split is 85/15 with Tubelines' senior debt totalling £1.8 billion.Equity comprises a £135 million sub-debt tranche put up by banks and investors, and a £135 million sponsor guaranteed equity bridge. Pricing on the 27-year sub-debt is fixed at1500bp ? nice if you can get it. Arranged by CIT ? with BES, Investec, LB Kiel, Goldman Sachs, WestLB and SG participating ? the sub-debt has the longest tenor of the whole deal, although only by two years, and is not covered by the UK government's letter of comfort.The equity bridge ? arranged by HSBC with SG, Mizuho and WestLB ? runs for 5 years and is priced at 32.5 bp and 27.5bp for A and AA rated banks respectively.The bridge does not affect co-sponsors Jarvis and Bechtel's bail-out of Amey. The £60 million equity support package was hammered out before the bridge was put in place. Amey has until end of June, 2003 to reclaim its equity portion. Whether it can, even after another management shake up last month, is questionable.The £1.8 billion senior debt is split into four parts ? £630 million of uncovered debt; £600 million wrapped by Ambac; £200 million standby and £96 million liquidity facilities; and finally a standalone £300 million EIB direct loan. Both the uncovered and covered tranches are split down the middle between 18 and 25 year debt. Pricing on the unwrapped tranche is 145bp for 18 years and 160bp, stepping up to 165bp after 5 years, on the 25-year money. Pricing on the wrapped debt starts at 50bp over libor, stepping up to 75 bp after 15 months and 100bp after 27 months. Participation fees were 20bp for £25 million. The EIB loan pricing is 25bp irrespective of tenor. The push to get deal closure before year-end meant some banks dropped out of the running. But take up was still high: 25 banks joined the senior debt; seven came into the sub-debt and four into the equity bridge.When it came to signing, much of the deal was a formality for financial adviser Macquarie Bank and mandated lead arrangers HBoS (technical), Mizuho (documentation), WestLB (documentation) and SG (bookrunner and modelling). Commercial close and syndication was in July 2002 and many of the lenders were just waiting to be given a pen. Those that came in as lead arrangers were ABN Amro, Bayerische Landesbank, BES, Bank of Ireland, Credit Agricole, Depfa, Dexia, Dredsdner Kleinwort Wasserstein and HypoVereinsbank.Participating banks are Banco Opi, CDC Ixis, Commerzbank, ING, KfW, NIB Capital, Sumitomo, Helaba, NordLB, BPI, DVB and Arab Bank.Debt is swapped into fixed rate 30 days after financial close. London Undergound's project advisor PricwaterhouseCoopers has drawn up swaps competition guidelines for the lead and mandated arrangers. The £630 million uncovered debt will be fixed rate via swaps for 7.5 years. The wrapped debt will be swapped in to 18 and 25 year money. Ambac is acting as credit intermediator on the swaps by wrapping Tubelines into a triple-A credit for the swap counterparties.The involvement of monoline Ambac in this deal ? according to bankers a necessary boost to liquidity ? is a PPP market first on this scale. Ambac hopes to market the deal as a template for banks grappling with the new return on equity and capital rules of Basel 2.With so many partcipants intercreditor issue required extensive legal counsel. Lovells acted for the borrowers; Freshfields for London Underground; Norton Rose for the senior debt; Allen & Overy for Ambac; Denton Wilde Sapte for the sub-debt and Shearman & Sterling for the EIB.Ironically, give the push to get the deal closed, draw down on the senior loans will not happen for nine months. Because of the threat of further legal challenges this part of the contract is covered by equity, sub-debt and London Underground fees.Plans to refinance Tubelines are already in place. SG and Goldman Sachs have refinancing mandates signed. SG is likely to refinance the wrapped senior debt first, given its step up profile, and then the uncovered tranche. Goldman Sachs is advising on the sub-debt. Although the benefits sharing package has already been agreed, unless all parties involved treat any refinancing sensitively, another Tubelines public relations nightmare beckons.
Tubelines
Status: Financial close 31 December 2002
Total project cost: £2.15 billion
Description: PPP deal for regeneration and maintenance of Jubilee, Northern and Picadilly lines on the London Undergound
Sponsors: Amey; Bechtel; Jarvis
Financial advisor to sponsors: Macquarie Bank
Financial advisor to concession awarder: PricewaterhouseCoopers
Debt: £1.8 billion
Mandated lead arrangers: HBoS (technical); Mizuho (documentation); WestLB (documentation); SG (bookrunner and modelling)
Lead arrangers: ABN Amro; Bayerische Landesbank; BES; Bank of Ireland; Credit Agricole; Depfa; Dexia; Dredsdner Kleinwort Wasserstein; HypoVereinsbank
Participating banks: Banco Opi; CDC Ixis; Commerzbank; ING; KfW; NIB Capital; Sumitomo; Helaba; NordLB; BPI; DVB; Arab Bank
Monoline wrap: Ambac
Multilateral debt: EIB
Sub-debt arranger: CIT
Sub-debt participants: BES; Investec; LB Kiel; Goldman Sachs; WestLB; SG
Legal counsel: Lovells (borrowers); Freshfields (London Underground); Norton Rose (senior debt); Allen & Overy (Ambac); Denton Wilde Sapte (sub-debt); Shearman & Sterling (EIB)
The race to get the £2.1 billion Tubelines PPP deal ? heavily opposed by Bob Kiley, head of Transport for London (TfL) and Ken Livingstone, mayor of London ? for its Jubilee, Northern Piccadilly, Infraco concession (JNP Infraco) closed by year-end finished with around 12 hours to go on 31 December 2002.
A punctured political football ? $4 million-plus of hot air and home goals in legal fees ? Tubelines is the best and biggest PPP deal yet to be born of compromise. The political wrangling, fuelled by the inability of lead banks and sponsors to get the PPP message across in the media, has forced the UK government to come up with a letter of comfort (not a guarantee) underpinning repayment of 95% of the debt to the banks if the PPP is terminated.And the threat of a further legal challenge by Kiley and Livingstone in the EU has meant government giving additional cover to lenders and equity in the event of a successful appeal. In return, banks are putting up signicant uncovered lending and have already agreed a shared benefits package with London Underground and the sponsors over any future refinancing.Given the public relations storm over the deal (from which no-one has emerged looking good) that Tubelines is going ahead with a reasonably priced debt package is surprising ? that it closed on time is shocking. According to bankers on the project, the haste to close had little to do with end-of-year bonuses and more to do with getting the deal finalised for the sponsors before lending interest dissipated with another legal challenge from Livingstone.Total JNP Infraco/Tubelines project cost is £2.15 billion. Rated triple-B+ by Standard & Poor's, debt service cover ratios on the sponsor base case are 1.6x average and 1.3x minimum. The senior debt-equity split is 85/15 with Tubelines' senior debt totalling £1.8 billion.Equity comprises a £135 million sub-debt tranche put up by banks and investors, and a £135 million sponsor guaranteed equity bridge. Pricing on the 27-year sub-debt is fixed at1500bp ? nice if you can get it. Arranged by CIT ? with BES, Investec, LB Kiel, Goldman Sachs, WestLB and SG participating ? the sub-debt has the longest tenor of the whole deal, although only by two years, and is not covered by the UK government's letter of comfort.The equity bridge ? arranged by HSBC with SG, Mizuho and WestLB ? runs for 5 years and is priced at 32.5 bp and 27.5bp for A and AA rated banks respectively.The bridge does not affect co-sponsors Jarvis and Bechtel's bail-out of Amey. The £60 million equity support package was hammered out before the bridge was put in place. Amey has until end of June, 2003 to reclaim its equity portion. Whether it can, even after another management shake up last month, is questionable.The £1.8 billion senior debt is split into four parts ? £630 million of uncovered debt; £600 million wrapped by Ambac; £200 million standby and £96 million liquidity facilities; and finally a standalone £300 million EIB direct loan. Both the uncovered and covered tranches are split down the middle between 18 and 25 year debt. Pricing on the unwrapped tranche is 145bp for 18 years and 160bp, stepping up to 165bp after 5 years, on the 25-year money. Pricing on the wrapped debt starts at 50bp over libor, stepping up to 75 bp after 15 months and 100bp after 27 months. Participation fees were 20bp for £25 million. The EIB loan pricing is 25bp irrespective of tenor. The push to get deal closure before year-end meant some banks dropped out of the running. But take up was still high: 25 banks joined the senior debt; seven came into the sub-debt and four into the equity bridge.When it came to signing, much of the deal was a formality for financial adviser Macquarie Bank and mandated lead arrangers HBoS (technical), Mizuho (documentation), WestLB (documentation) and SG (bookrunner and modelling). Commercial close and syndication was in July 2002 and many of the lenders were just waiting to be given a pen. Those that came in as lead arrangers were ABN Amro, Bayerische Landesbank, BES, Bank of Ireland, Credit Agricole, Depfa, Dexia, Dredsdner Kleinwort Wasserstein and HypoVereinsbank.Participating banks are Banco Opi, CDC Ixis, Commerzbank, ING, KfW, NIB Capital, Sumitomo, Helaba, NordLB, BPI, DVB and Arab Bank.Debt is swapped into fixed rate 30 days after financial close. London Undergound's project advisor PricwaterhouseCoopers has drawn up swaps competition guidelines for the lead and mandated arrangers. The £630 million uncovered debt will be fixed rate via swaps for 7.5 years. The wrapped debt will be swapped in to 18 and 25 year money. Ambac is acting as credit intermediator on the swaps by wrapping Tubelines into a triple-A credit for the swap counterparties.The involvement of monoline Ambac in this deal ? according to bankers a necessary boost to liquidity ? is a PPP market first on this scale. Ambac hopes to market the deal as a template for banks grappling with the new return on equity and capital rules of Basel 2.With so many partcipants intercreditor issue required extensive legal counsel. Lovells acted for the borrowers; Freshfields for London Underground; Norton Rose for the senior debt; Allen & Overy for Ambac; Denton Wilde Sapte for the sub-debt and Shearman & Sterling for the EIB.Ironically, give the push to get the deal closed, draw down on the senior loans will not happen for nine months. Because of the threat of further legal challenges this part of the contract is covered by equity, sub-debt and London Underground fees.Plans to refinance Tubelines are already in place. SG and Goldman Sachs have refinancing mandates signed. SG is likely to refinance the wrapped senior debt first, given its step up profile, and then the uncovered tranche. Goldman Sachs is advising on the sub-debt. Although the benefits sharing package has already been agreed, unless all parties involved treat any refinancing sensitively, another Tubelines public relations nightmare beckons.
Tubelines
Status: Financial close 31 December 2002
Total project cost: £2.15 billion
Description: PPP deal for regeneration and maintenance of Jubilee, Northern and Picadilly lines on the London Undergound
Sponsors: Amey; Bechtel; Jarvis
Financial advisor to sponsors: Macquarie Bank
Financial advisor to concession awarder: PricewaterhouseCoopers
Debt: £1.8 billion
Mandated lead arrangers: HBoS (technical); Mizuho (documentation); WestLB (documentation); SG (bookrunner and modelling)
Lead arrangers: ABN Amro; Bayerische Landesbank; BES; Bank of Ireland; Credit Agricole; Depfa; Dexia; Dredsdner Kleinwort Wasserstein; HypoVereinsbank
Participating banks: Banco Opi; CDC Ixis; Commerzbank; ING; KfW; NIB Capital; Sumitomo; Helaba; NordLB; BPI; DVB; Arab Bank
Monoline wrap: Ambac
Multilateral debt: EIB
Sub-debt arranger: CIT
Sub-debt participants: BES; Investec; LB Kiel; Goldman Sachs; WestLB; SG
Legal counsel: Lovells (borrowers); Freshfields (London Underground); Norton Rose (senior debt); Allen & Overy (Ambac); Denton Wilde Sapte (sub-debt); Shearman & Sterling (EIB)
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