1 RISK SHARING FINANCE FACILITY Growing Galileo 2009 Brussels 28 January 2009 EC – DG RTD – Directorate B – Anna Krzyzanowska

2 Table of Contents Implementation strategy Implementation results 1. Introduction to RSFF 4. Awareness raising 5. SMEs/Mid Cap product development

3 December 2005 European Council: The European Council invites the Commission in cooperation with the European Investment Bank (EIB) to examine the possibility of strengthening their support for Research and Development by up to a maximum of EUR 10 billion through a financing facility with risk sharing components to foster additional investment in European research and development, particularly by the private sector. A political request to increase financial support to R&D

4 Risk-Sharing Finance Facility (RSFF): The investment and financing gap Despite increased FP 7 budget for 2007 – 2013 (EUR 54,6 billion), there is a lack of funding for excellent and top quality R&D projects at EU level Investment in R&D is crucial for Europes competitiveness and growth potential Lack of private investment in R&D has been identified as the single key factor for Europes relatively weak total investment in R & D R&D investment carries a high(er) risk and uncertainty; scarce financing resources in Europe for such risky projects (market deficiency)

5 Risk-Sharing Finance Facility Added value An innovative financing mechanism to: Foster increased private investment in research by improving access to loan finance. Risk-sharing between the Community and EIB to allow: - Larger volume of risky lending to R&D - Financing of riskier, but creditworthy projects Generate a leverage effect so that the volume of extra lending by EIB and its partner banks is a 4 to 6 multiple of the Community funds provided to the facility. Rely on an existing EIB facility (SFF), and therefore benefit from EIB s experience and management.

6 Table of Contents Implementation strategy Implementation results 1. Introduction to RSFF 4. Awareness raising 5. SMEs/Mid Cap product development

7 RSFF implementation strategy Risk categories RSFF Risk Coverage Range RSFF is a debt based instrument not a grant Financing does not involve a subsidy element The facility does not concern risk capital such as venture capital RSFF concerns companies or projects mature enough to demonstrate capacity to repay and service debt on the basis of a credible business plan. An external rating is not required.

8 RSFF implementation strategy Strategic objectives Support the financing of innovative companies of any size and ownership for the implementation of eligible RDI projects Provide value added by sharing risks with promoters, banks and other financiers for the financing of eligible projects Offer RSFF access to small and medium sized projects and companies in all MS and AC Priority of European Technology Platforms, Joint Technology Initiatives and Eureka Support European Research Infrastructures (Capacities SP)

9 RSFF implementation strategy Eligible project cost Project capital expenditures in tangible assets. Intangible assets: Research staff cost Incremental working capital requirements Acquisition of Intellectual Property Rights Multi-annual R&D budgets (typically 3-4 years) Financing up to 50% of total cost, except particular cases in line with EIB strategic orientations (ie: environment, renewable energies; …)

10 RSFF implementation strategy Beneficiaries of RSFF financing Mid-Caps and large corporates (typically unrated / sub investment grade / turnaround situations) SMEs Research Institutes Universities Special Purpose / Project Companies Research Infrastructure promoters Any size and ownership

11 RSFF implementation strategy RSFF products Corporate Loans (senior / junior) Guarantees Project Finance (limited/non recourse) Mezzanine Loans Risk Sharing Facilities with banks Other structured products

12 RSFF implementation strategy Financing terms Medium and long term financing Minimum size per loan: > EUR 7.5m (for smaller loans EIB makes available Risk Sharing Bank Facilities Project assessment : eligibility, techno-economic and financial viability

13 Indirect loans / guarantees Commercial bank Beneficiary (promoter) Refinancing/Guarantee Loan Direct loans / guarantees Comm. bank (Co-finance) Borrower (promoter) Loan or Guarantee RSFF implementation strategy Financing modes – individual financing Loan Guarantee

14 Risk Sharing Bank Facility Small and medium sized projects Partner bank Beneficiary Loan / Guarantee (Mezzanine) Loans Beneficiary RSFF implementation strategy Financing modes – Risk Sharing Bank Facilities

15 Table of Contents Implementation strategy Implementation results 1. Introduction to RSFF 4. Awareness raising 5. SMEs/Mid Cap product development

16 RSFF update Summary Volumes: RSFF operations forecast for signature at the end of 2008 is EUR 1.3 billion. Main sectors financed: renewable energy technologies, engineering and automotive, life science and ICT plus risk-sharing with intermediaries Geographical spread: 14 countries at the end of 2008 Financing modes: corporate loans, project finance and risk sharing bank facilities Extensive awareness raising

17 RSFF market update 2008 The current market sentiment: (i) significant increases in credit spreads, (ii) sharp decline in commercial bank financing supply due to funding as well as capital constraints of banks in the market and (iii) decreasing RDI investments due to expected economic down-turn. The implications for RSFF are both positive (more projects) and negative (high mortality rate) Market/business risk profiles increased significantly hence an increase in credit risk for new transactions but also for existing RSFF loan exposures. Execution time for new operations is expected to increase and sophisticated financial structuring to mitigate operational risks more and more important

18 Geographical Spread July 2008 End 2008

19 RSFF update Sectors End 2008 Bank Risk Sharing represents loans provided by the EIB to intermediaries with a view to finance smaller loans (below EUR 7.5 million) to research-intensive companies.

20 Table of Contents Implementation strategy Implementation results 1. Introduction to RSFF 4. Awareness raising 5. SMEs/Mid Cap product development

21 RSFF update Awareness raising campaign and dissemination (EIB + EC) Over 40 seminars, workshops and meetings, and 17 conferences organised with the stakeholders of FP7 and with potential RSFF borrowers in 2008 In 2008 (to date), the RSFF presentations were made in: Belgium, Czech Republic, Denmark, Estonia, France, Finland, Germany, Hungary, Italy, Lithuania, Luxemburg, the Netherlands, Poland, Portugal, Slovenia, Spain, Sweden, Turkey, UK. The website is being frequently updated. Portfolio updates and factsheets presenting example transactions will also be posted there. EC RSFF sector continues to present RSFF to colleagues from DG RTD and other DGs of the research family, either in the form of dedicated presentations or within the framework of FP7 training sessions. The network of RSFF liaison officers is regularly updated on RSFF progress.

22 Table of Contents Implementation strategy Implementation results 1. Introduction to RSFF 4. Awareness raising 5. SMEs/Mid Cap product development

23 SMEs: Complementarities between CIP and FP7 (RSFF) Risk Capital 1 CIP Resources (SME) 2 RSFF (SME / MidCap) 3 Entrepreneur, friends, family Business Angels Seed/Early Stage VC Funds Formal VC Funds Bank Loans and Guarantees Seed / Start-Up PhaseEmerging Growth PhaseDevelopment Phase Facility: High Growth Innovative SME Scheme (GIF), Ecotech Purpose: IP financing, technology transfer, seed financing, investment readiness Target Group: VC Funds, Business Angels EIF Product: Fund-of-Funds Facility: CIP Guarantee schemes Purpose: Growth financing for SMEs Target Group: Formal VC Funds, CLOs EIF Product: SME guarantees (loans, microcredit, equity/mezzanine, securitisation Facility: RSFF Purpose: RDI financing Target Group: SMEs/MidCaps, Banks, PE Investors, EIB Product: Loans (incl. Mezzanine), Funded Risk Sharing Facilities with Banks (Investors)

24 EIB Borrower EIB For loans of EUR 7.5 million or more - direct involvement by the EIB Borrower Intermediary For all loans where borrowers wish to work with their own banks, in particular those of less than EUR 7.5 million - sharing of RSFF benefits with intermediaries (e.g. through partial guarantees) Refinancing/ Guarantee EIB and its partner banks (intermediaries)

25 SMEs/Mid Cap – Facility Structure Approved Signature of the Automotive Supplier RDI Facility (loans and guarantees to RDI projects of SMEs and mid cap automotive suppliers in Germany; EUR 100m + EUR 50m) - RSFF Approval of KfW Ipex Risk Sharing Facility (loans and guarantees to mid-cap companies in Germany; EUR 100m + EUR 50m) - RSFF Approval of RZB Group Risk Sharing Facility (loans and guarantees to mid cap companies in Austria, Hungary, Romania; EUR 100m + EUR 70m) – partially RSFF Approval of CS Risk Sharing Energy Efficiency (loans and guarantees to SMEs in the Czek Republic; EUR 100m + EUR 60m) – SMEs, non RSFF

26 SMEs/Mid Cap – Facility Structure Running negotiations Project NameTargetAmount (M EUR) Bank Pekao BPSME100 BPI SME Risk Sharing SFFSME100 BA-CA Risk Sharing Austria RSFFSME/Midcap75 Banca IntesaSME100 SEBSME100

27 RSFF Thank you for your attention