■ SOC.인프라펀드

유럽투자은행 (EIB)의 프로젝트본드(Project Bond): The Europe 2020 Project Bond Initiative - Innovative infrastructure financing

Bonjour Kwon 2014. 3. 31. 17:29

EIB의 프로젝트본드(Project Bond)2020은 유럽 인프라 프로젝트의 자금지원을 목적으로 설립된 채권이다. 2020년까지 46억 유로 규모의 직접투자, 400억 유로의 인프라펀드를 조성할 계획이다.

 

The Europe 2020 Project Bond Initiative - Innovative infrastructure financing

The Project Bond initiative is a joint initiative by the European Commission and the EIB.

Its objective is to stimulate capital market financing for large-scale infrastructure projects in the sectors of transport (TEN-T), energy (TEN-E) and information and communication technology (ICT). According to the Commission, the European Union’s infrastructure investment needs to meet the Europe 2020 objectives in these sectors could reach as much as EUR 2 trillion.

The Project Bond initiative is designed to enable eligible infrastructure projects promoters, usually public private partnerships (PPP), to attract additional private finance from institutional investors such as insurance companies and pension funds.

Improving credit quality

This will be achieved by providing credit enhancement to those promoters, whose debt will effectively be divided into two tranches: senior and subordinated.

The subordinated debt, or Project Bond Credit Enhancement (PBCE) can take the form of a loan from the Bank, with the support of the European Commission and is given to the promoter at the outset. It may also take the form of a contingent credit line which can be drawn upon if the revenues generated by the project are not sufficient to ensure senior debt service.

The PBCE underlies the senior debt and therefore improves its credit quality, offering peace of mind to institutional investors.

The bonds themselves will be issued by the promoters not by the Bank or the Member State in question. The support will be available during the lifetime of the project, including the construction phase.

Pilot phase

A pilot phase is ongoing to test the project bond concept during the remaining period of the current multi-annual financial framework 2007-2013, before the next multi-annual financial framework 2014-2020. Suitable projects will need to reach financial close between now and end of 2016.

This testing phase is funded by EUR 230 million of EU budgetary resources from unused budget lines for existing programmes. This should enable the EIB to provide financing to infrastructure projects worth more than EUR 4 billion across the three sectors.

The Bank selects and appraises projects according to its own standards, structures and prices the credit enhancement instrument for the selected project, and carries out the monitoring, although it will not act as a credit controller. Subsequent decision-making for projects will be formulated on a case by case basis by the parties involved.

So far, the EIB Board of Directors has approved nine projects in six different Member States. The first transaction under the Project Bond Credit Enhancement initiative successfully took place in July 2013 in Spain for the Castor underground gas storage project, that will provide storage for 30% of Spain’s daily gas consumption.

Based on a positive interim evaluation in 2013 and subject to the final evaluation of the pilot phase in 2015, the Project Bond Initiative is expected to be fully rolled-out within the Connecting Europe Facility (CEF) forming part of the 2014-2020 Multiannual Financial Framework (MFF).

 

 

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The pilot phase of the Europe 2020 Project Bond Initiative

The pilot phase of the EU-EIB Project Bond Initiative was established by Regulation No. 670/2012pdf, published in the Official Journal L 204/1 of 31/07/2012. The Initiative aims to revive and expand capital markets to finance large European infrastructure projects in the fields of transport, energy and information technology.

The scope of this pilot phase is to test the project bond concept at the end of the multi-annual financial framework 2007-2013. The pilot phase of the Initiative started its operations in 2012 and is  being implemented by the European Investment Bank (EIB). The cooperation agreement between the Commission and the EIB was signed on 7 November 2012. The objectives of the pilot phase of the Initiative are two-fold:

  • to stimulate investment in key strategic EU infrastructure in transport, energy and broadband.
  • to establish debt capital markets as an additional source of financing for infrastructure projects.

The aim is to attract institutional investors to the capital market financing of projects with stable and predictable cash flow generation potential by enhancing the credit quality of project bonds issued by private companies. The intention is to support capital market financing of projects as a form of finance to complement loans, not to replace other sources of financing, such as grants, nor to intervene in stages prior to financing, such as feasibility studies, assessments or procurement, where grants are also widely used.

Commercially viable infrastructure projects in the EU, which are eligible for funding under the TEN-T or TEN-E policies or under the CIP-Decision on broadband, can benefit from the initiative.

Project bond initiative

>> see illustrative project example

 

Differences between the Europe 2020 Project Bonds and the Eurobonds/Stability Bonds

The aim of the Europe 2020 Project Bond Initiative is to enhance the credit standing of private entities that need to raise private funds for the infrastructure projects they promote. This is fundamentally different from the idea of the so-called "Eurobonds" or "Stability Bonds", i.e. the joint issuance of bonds to provide general funding for Member States' government funding needs. In contrast, neither the Commission nor the Member States will issue bonds under the Europe 2020 Project Bond Initiative.

 

Projects

Projects currently supported

Pipeline: Approved projects with PBCE option

For reasons of confidentiality specific details of projects in the pipeline may not be disclosed. Full details will be published when contracts have been finalised and signed by all parties.

The following table lists projects currently in the approval pipeline.

Pipeline: Approved projects with PBCE option (in EUR million)

TEN-T Motorway Germany 120
TEN-T Motorway UK 200
TEN-E Grid connection to several offshore wind farms UK 150
TEN-E Gas storage Italy 200
TEN-T Motorway Slovakia 200
TEN-E Grid connections to several offshore wind farms Germany 170*
(Per operation)

Next financial close anticipated mid 2014

Related documents

External documents

Please note: These external publications have been posted with the permission of the publishing organisations for general information purposes. The opinions expressed therein are solely those of the publishing organisation, the author or the consulted parties as specified. Please consult the websites of the organisations for updates, copyrights and disclaimers.

For further information please contact

Questions and Answers

The interim evaluation report on the pilot phase of the Project Bond Initiative can be found on EUR-Lex.

More information on the pilot phase of the Europe 2020 Project Bond Initiative can be found on Europa website.

 

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Credit enhancement - the key to unlocking the project bonds market

 

March 2013

 

 

Ready appetite for project bonds

Pension funds, insurance companies and other institutional investors are seeking to invest in assets with yields higher than Government bonds delivering stable, long dated cash flows which can match their liabilities, in part to fill the gap left by securitisation products.

Project bonds have the promise to offer these cash flows, and investment in infrastructure particularly in the current economic climate makes sense. Infrastructure projects have support from Governments, recognising their value in creating jobs and growth. Resources from the construction and engineering industries are available relatively cheaply. Funding, however, is a problem with long dated bank loans not being readily available due to market changes and the Basel III reforms.

“A” credit rating preferred

Institutional investors have continued to focus principally on project bonds with “A”credit rating, which have the right combination of yield and risk for them. Insurance companies have an additional reason to hold “A” credit rated bonds as Solvency II imposes a relatively higher capital charge for long term bonds which are credit rated “BBB” or lower.

The focus on “A” credit rated bonds does not fit with investments into greenfield projects with the risks of construction delays and cost overruns, since such projects are unlikely to receive such rating for their bonds.

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Credit enhancement required

Set against this background, various forms of “credit enhancement” of project bonds have been proposed by the public and private sectors.

Europe 2020 Project Bond Initiative

The Europe 2020 Project Bond Initiative was announced as a consultation exercise in February 2011. The Initiative’s pilot phase allocates €230 million to Trans-European Network (TEN) programmes consisting of €200 million for transport projects, €10 million for energy transmission and storage projects, and €20 million for broadband / information and communication technology (ICT) projects.

Under the Initiative, the European Investment Bank (EIB) will provide a subordinated loan or a guarantee, in each case, up to 20 per cent of the project debt, meaning that EIB would take, after the loss of all the equity, the first 20 per cent of debt losses relating to the project.

UK Guarantees Scheme

The UK Guarantees Scheme was announced by the UK Government in July 2012 with the aim of “kick starting critical infrastructure projects that may have stalled because of adverse market conditions”. Guarantees will be offered with a fee at market rates to avoid any EU state aid issues.

Around £40 billion of projects could qualify for the provision of guarantees. These projects could come from a range of sectors including transport, utilities, energy and communications. Eligible projects will be subject to charges, due diligence and as a minimum must meet five key criteria:

  • Nationally significant, as identified in the Government’s National Infrastructure Plan 2011;
  • Ready to start construction within 12 months from a guarantee being given and planning consent obtained;
  • Financially credible, with equity finance committed;
  • Dependent on a guarantee to proceed and not otherwise financeable within a reasonable timeframe; and
  • Good value to the taxpayer.

Hadrian’s Wall Capital

Hadrian’s Wall Capital (HWC) was established in 2009 to provide a new market-based bond-financing solution to European infrastructure debt markets. The first transaction was announced in May 2012 with commitments from Aviva Life & Pensions UK, EIB and the Development Bank of Japan.

The HWC product offers debt to a borrower through a single debt instrument provided at a spread over the appropriate Gilt. HWC will then tranche the debt into two tranches, a senior tranche as A Notes and a subordinated tranche as B Notes. The A Notes are issued to the capital markets and the B Notes are placed with a fund. The fund, through the B notes, will provide a “first loss” tranche of debt for a project. Typical funding proportions might be A Notes representing 75 per cent, B Notes representing 10 per cent and equity 15 per cent. The aim would be to take the total project debt with a rating of BBB-/BBB and use the fund to enhance the risk profile of the A Notes to at least BBB+.

The structure uses the principle of some real estate funds where the B Notes are the controlling creditor of the project unless the project performance falls below pre-defined thresholds, in which case the A Notes take control. This alleviates the need for bondholders to manage the project on a day to day basis unless the project is in distress.

Once executed, the role of HWC would be to provide a monitoring service for the investors to ensure they receive timely information.

Pan European Bank to Bond Loan Equitisation (PEBBLE)

Pan European Bank to Bond Loan Equitisation (PEBBLE) was announced in December 2012 backed by ING. PEBBLE is intended to provide project bonds with credit enhancement through the provision of a subordinated cushion during the riskiest phase of a project (construction and ramp up), whilst during this phase the B Lenders, as commercial banks, control the project by responding to waiver and consent requests as controlling creditor.

PEBBLE financing is delivered by a SPV to the project company – the financing from the SPV to the project company matches the funding of the SPV itself. The SPV is funded with the following financing elements:

  • Construction Revolving Facility provided by commercial banks which is drawn to meet construction costs (against certificated value, in the normal way) and periodically refinanced by a combination of the A Notes and B Loan;
  • A Notes which are subscribed for by institutional investors on a fixed drawdown and amortisation schedule and which rank senior to the B Loan; and
  • B Loan (with its related hedging) provided by commercial banks, which ranks junior to the A Notes, but is scheduled to amortise in advance of the A Note principal repayments.

The A Notes and the B Loan will be drawn in a ratio of 85:15.

Prior to the B Loan being amortised by 35 per cent, the B Lenders will act as controlling creditor. After this, the A Noteholders and B Lenders will together be controlling creditor. There is a snooze/lose arrangement to ensure that non-responding creditors do not prejudice the ability to take a decision. Due to the subordination of the B Loan, whilst an event of default will arise on non-payment of the B Loan interest or principal, consent of the A Notes will be required to call the event of default.

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Role of the controlling creditor

Neither the Europe 2020 Project Bond Initiative nor the UK Government Guarantees Scheme seeks to give public control over the relevant infrastructure projects.

In the private initiatives, the subordinated lender is given the role of the “controlling creditor”, having the right to make certain decisions which binds the bond investors. The decisions that the controlling creditor is entitled to make are intended to be limited to those which would not affect payment from the bonds. In HWC, the B Noteholders are the controlling creditors unless the project performance falls below pre-defined thresholds, in which case the A Noteholders take control. In PEBBLE, the B Lenders act as the controlling creditor until the end of the construction and ramp up phase (and the B Loan has amortised by 35 per cent) after which the A Noteholders and the B Lenders will together be controlling creditor.

The role of the controlling creditor in these private initiatives is similar to the role the monolines had as the guarantor of the senior tranche of project bonds. The monolines provided AAA rating to the senior tranche whilst monitoring the project, with the right to consent to changes to the structure (other than those relating to the repayment profile of the senior tranche and the rights of the trustee) and to waive any default on the senior tranche.

The function of the controlling creditor is likely to evolve particularly due to the differing treatment of mezzanine finance between financial markets. In the context of project finance, mezzanine lenders have historically been afforded few rights to participate in senior decision making and/or to exercise any enforcement rights. This can be contrasted with, for example, the leveraged finance market, where mezzanine lenders have been given certain rights to participate in senior decisions and, albeit following a standstill period, can exercise enforcement rights.

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Making institutional investor participation easier

In the life of any project, investors may have to be involved to agree changes to documents which were not foreseen at the beginning. Bonds do have an inherent issue in that the identity of the investors may not be known as bonds are easily transferable in the clearing systems. However in many cases the larger investors are known and a reasonable guess could be made as to the smaller investors. With Euromarket documentation, holders of 75 per cent in principal amount of the bonds can usually agree to any changes. If the requisite investors are identified, then dialogue can be opened up with them with a view to negotiating changes to the documentation in the usual way, recognising that the dynamics of the negotiation will be different to that with the lending banks.

From an administrative perspective, the market has experienced many bond restructuring during the credit crisis and has consequently built up know-how on easing the process for changing bond documentation. In addition, since the bond trustee does not usually make commercial decisions without approval by the bondholders, bond documents now more commonly contain provisions which make the bondholder voting procedure easier such as 75 per cent majority for written resolutions and electronic consents communicated through the clearing systems.

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Capital market access

Market participants agree that capital markets access is a vital goal, bearing in mind that there is a limited amount of long-duration bank debt available. The first project bonds are likely to be in more familiar and easily understood sectors such as roads. In addition to new projects still at the procurement stage, credit enhancement could also be used on the refinancing of existing projects that are already generating cashflows – so the first deal could be either greenfield or a refinancing

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