PF Archive

Is the M25 a PPP rescue template?

19 12 2008

The £1.4 billion ($2.08 billion) Balfour Beatty-led M25 London ringroad financing is officially meant to close in 2008, but the deal will not be out to market until 2009. Four coordinating banks – HSBC, Lloyds, Dexia and Barclays – have been appointed and are guiding a further 15 lenders into the project, as well as the European Investment Bank (EIB). Banks will struggle with the proposed tenor of 27 years as they grapple with their own funding constraints and many are already calling for a miniperm tranche. But the M25 looks more likely to be a test of the solution to PPP liquidity being proffered by many project arrangers: that EIB and government participation combined with a large number of small-ticket commercial bank participations is enough to close a high-profile deal. The problem with PPP financings is not project risk. Availability-based PPP deals are among the safest form of project financings (Metronet excluded), with visible income streams and relatively benign penalty regimes. The problem is bank liquidity. This is why banks rejected a proposed contingent guarantee, similar to that provided by Transport for London on the Tube Lines structure, offered by the Highways Agency (HA) for the M25. Lenders would still...