The £1.76 billion financing for the Thameslink rolling stock project confirmed that long-dated bank debt is still available for the right assets. Thameslink entered procurement at the height of the financial crisis and the UK Department for Transport’s choice of sponsor proved controversial.

The project is a key element of the UK government’s £6 billion Thameslink rail network upgrade. It is also the only rolling stock PPP project to have been procured in the UK since Intercity Express, which closed in 2012.

The Thameslink’s £1.6 billion debt financing had a 25-year tenor, to match its concession length. Around 19 banks, including the European Investment Bank, came in at close in November 2013. The sponsor consortium, comprising Siemens Financial Services, 3i and Innisfree, with equal stakes, contributed £180 million in equity. The debt pricing came in at 265bp for years one to seven, with gradual steps up to 370bp by year 16.

The DfT and sponsors explored a bond before sticking with a bank financing. It is questionable whether UK institutional investors have the resources and experience to get comfortable with the credit, though the sponsors have not ruled out using a bond for an eventual refinancing.

The Cross London Trains consortium was named preferred bidder for the Thameslink rolling stock contract in June 2011, three years after the DfT launched the tender. The contract is the largest order that Siemens has ever won in the UK and one of the biggest orders anywhere for Siemens’ rolling stock business.

Neither the government nor the existing rolling stock companies (Roscos) were up to the task of ordering such a large fleet of trains at once. The DfT, which dislikes using the Roscos for big orders, wanted the franchisee and rolling stock provider to share more operational risk. Thameslink’s existing franchisee, First Capital Connect, will lease the trains, though in the final instance, the department guarantees that any new franchisee would sign a lease on substantially the same terms.

Under the PPP contract Siemens will design, construct, maintain and lease around 1,140 electric multiple carriages. The first trains are due to be delivered by 2016 and the final unit will be completed 4.5 years later.

The department also provides the project company with protection against funding risk, by promising to rebalance the concession if, following the withdrawal of a lender, the project cannot replace it. But the financing attracted a large bank following, with a £1.15 billion commercial bank financing complementing £425 million in EIB debt.

SMBC, BTMU, Lloyds, KfW IPEX were lead arrangers, while the participating lenders were Bank of China, Barclays, Bayerische Landesbank, Commonwealth Bank of Australia, Crédit Agricole, CIC, DBJ, Deutsche, DZ Bank, HSH Nordbank, ING, Helaba Landesbank Hessen-Thüringen, Mizuho, and SEB.

The UK government has decided to directly procure the rolling stock for Crossrail, the other big cross-London rail project, and will again be contract counterparty on the second phase of the Inter-City Express. But Thameslink shows that train operating companies, with enough support from government, can be counterparties on UK rolling stock financings.