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Tube Lines Steve Hurrell Director of Finance 12 February 2009.

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Presentation on theme: "Tube Lines Steve Hurrell Director of Finance 12 February 2009."— Presentation transcript:

1 Tube Lines Steve Hurrell Director of Finance 12 February 2009

2 About the Tube PPP One 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

3 About Tube Lines Responsible 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

4 Our assets We support some of the worlds busiest stations Waterloo67.4m people per year Tottenham Court Rd30.8m people per year Leicester Square29.5m 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

5 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

6 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

7 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 effectivel y

8 Whole life asset management Output based contract allows whole life approach to the assets Long term planning Optimising maintenance and renewals Decisions on timing and extent of interventions Examples Northern line track programme Lifts and escalators Points and crossings

9 Profit before Safety – RMT 2000

10 10

11 Our Financing Structure

12 £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 risk Term Loan £1.526bn NOT GUARANTEEDNOT GUARANTEED £1.800bn Original Financing – Bank Debt

13 £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 GUARANTEEDNOT GUARANTEED Original Financing

14 £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

15 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 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

16 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

17 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

18 ORR Constituency MPs RMTRMT Shareholders Banks Bondholders Employees Passengers Government support? The broader stakeholder base

19 Any Questions

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