Tube Lines
Steve HurrellDirector of Finance
12 February 2009
About the Tube PPPOne of the largest transport capital infrastructure programmes in the world introduced to overcome decades of under investment and to introduce private sector disciplines to deliver to time and cost
Split between
Infrastructure (private sector)
Operations and fares (public sector)
30 year, output-based contract
Combines maintenance and upgrade responsibility
Critical work programme to deliver line upgrades
Role of the PPP Arbiter
About Tube LinesResponsible for the infrastructure – signals, trains, track,
stations, escalators, lifts – on the Jubilee, Northern and
Piccadilly lines
Tube Lines has:
7½ year investment programme of roundly £5bn
2008 annual turnover of roundly £1billion
3,000 employees
Almost 2m passengers travelling on our lines every day
Our assets• We support some of the world’s busiest
stations• Waterloo 67.4m people per year
• Tottenham Court Rd 30.8m people per year
• Leicester Square 29.5m people per year
• Northern Line is busiest railway in Europe• We maintain
• 325 kilometres of track
• 255 trains
• 100 stations
• 227 escalators and 88 lifts
• 2,395 buildings and structures
Output-based
Contract sets out targets and performance incentives/penalties
Tube Lines designs the programme appropriate to meeting these targets
• Whole life decisions
Delivering
• Sustainable programmes
• Focus on delivery times and quality of work
Measured against three key deliverables
• Being Economic and Efficient (“E & E”)• Uses Good Industry Practice (“GIP”)• Applies Whole Life Asset Management decisions (“WLAM”)
Practicing these demonstrates that Tube Lines is the Notional Infraco
Ultimately the PPP Arbiter determines if Tube Lines has achieved the key deliverables either as part of an Extraordinary Review or as part of the Periodic Review
Using a supplier independent model
• Metronet used its shareholders extensively in the supply chain
• Tube Lines has Secondment Arrangements which are
consistent with Shareholder and Lender objectives
• Tube Lines competitively tenders for all of its work and therefore can demonstrate market rates and therefore E&E
• Allows WLAM model to be delivered effectively
Whole life asset management
Output based contract allows whole life approach to the assets
• Long term planning
• Optimising maintenance andrenewals
• Decisions on timing and extent of interventions
Examples
• Northern line track programme
• Lifts and escalators
• Points and crossings
“Profit before Safety” – RMT 2000
10
Tube Lines Combined Employee/Contractor (RIDDOR) Lost Time Injury Frequency Rate (LTIFR)
0.13
1.40
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
2002 2003 2004 2005 2006 2007 2008
LTIF
R
Our Financing Structure
£19 m L/C Facility
£55m Safety Change
£200m Standby Facility
95% Guaranteed by TfL/LUL of the underpinned amount of £1.8bn
5% Project riskTerm Loan £1.526bn
NOT GUARANTEED
£1.800bn
Original Financing – Bank Debt
£135m provided by Mezzanine lenders
£19 m L/C
£55m Safety Change
£200m Standby
Term Loan £1.526bn
£1.935bn
£135m provided by Mezzanine lenders
Guarantee from TfL for 95% recovery ~ TfL credit rating = AA
Despite this, senior debt rated BBB+ (investment grade) reflecting TLL project risk
20+ banks formed the bank syndicate
Control regime around approval of contracts was significant + costly + time consuming
Needed to produce quarterly financial plans
Significantly more information demands
Much tighter covenants for defaults and breaches that could lead to draw stops
Drawdown consent quarterly from Technical Adviser
NOT GUARANTEED
Original Financing
£135m provided by Mezzanine lenders
Term Loan
£1,526.41m
Term Loan£1.526bn
Converted into corporate bonds
Refinanced facilities use the same debt service cash flows from the original debt facilities using a new company -TLF plc
Used Ambac’ AAA credit rating to wrap the £300m EIB debt
Senior debt split into tranches - with the A class benefiting entirely from TfL AA credit rating and viewed by DePfa as municipal risk
A1 notes funded over time to reduce “cost of carry” (Difference between deposit rate and borrowing rate)
Mezzanine replaced by C & D tranche notes
Refinancing
Term Loan
£1,526.41m
100% Guaranteed by TfL/LUL
Indirectly guaranteed by TfL/LUL as provided by Spens
Operating risk
£22m D Notes
£150m C Notes
£77m B Notes
£15m EIB B Loan
£285m EIB A Loan
£95m A-2C Notes
£1,146m
Class A-1 Notes
£19m L/C Facility
£55m Safety Change
£200m Issuer Standby Facility
£2.064bn
£55m Safety Change £55m Safety Change £55m Safety Change
Gross benefit of refinancing £132m
Less costs of £64m
Benefit shared between LU = £41m
Shareholders £27m
£0.26bn - £0.13bn = £0.13bn gross benefit of refinancing
Current Financing
£1.8bn
Private Finance and the Lenders management of risk in the PPP
Lenders take a proportion of project risk
Therefore
• we have a Technical Adviser appointed to review and report
• bi-annual financial forecasts• approval of key business decisions and contract
conditions• covenant compliance
Private finance v Public finance
• Distances some of the short term political interventions
• Can still suffer from party political policy• Creates a platform for project delivery• Introduces more effective project disciplines
(monitoring)• Lenders share in risk• Refinancing gains post construction risk are
now more fairly distributed
ORR
Constituency MP’s
RMTShareholdersBanksBondholdersEmployeesPassengers
Government support? The broader stakeholder base
Any Questions