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 world’s busiest stations
Waterloo m 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

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 effectively

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

11. Our Financing Structure

12. Original Financing – Bank Debt
£19 m L/C Facility
£55m Safety Change
£200m Standby Facility
NOT GUARANTEED
95% Guaranteed by TfL/LUL of the underpinned amount of £1.8bn
5% Project risk
Term Loan
£1.526bn
£1.800bn

13. Original Financing
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
£19 m L/C
£55m Safety Change
£200m Standby
NOT GUARANTEED
Term Loan
£1.526bn
Margins ranged from 0.25% to 1.60%
£600m wrapped 0.5% rising to 1% after 27 months
£315m unwrapped 18yrs 1.45%; £315m 25yrs 1.6%
EIB 0.25%
£135m provided by
Mezzanine lenders
£135m provided by
Mezzanine lenders
£1.935bn

14. Converted into corporate bonds
Refinancing
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)
Term Loan
£1,526.41m
Mezzanine replaced by C & D tranche notes
£135m provided by
Mezzanine lenders

15. Current Financing Gross benefit of refinancing £132m
£200m Issuer
Standby Facility
£55m Safety Change
£55m Safety Change
£55m Safety Change
£55m Safety Change
£19m L/C Facility
100% Guaranteed by TfL/LUL
Indirectly guaranteed by TfL/LUL as provided by Spens
Operating risk
Gross benefit of refinancing £132m
Less costs of £64m
Benefit shared between
LU = £41m
Shareholders £27m
Class A-1 Notes
£1,146m
£1.8bn
Term Loan
£1,526.41m
Ambac ~ EIB A loan and A1 interest guarantor, which makes them Directing Creditor
Tranching of debt allowed the maximum amount to be raised at the most effective rate of interest
£285m EIB A Loan
£15m EIB B Loan
£77m B Notes
£95m A-2C Notes
£150m C Notes
£0.26bn - £0.13bn = £0.13bn gross benefit of refinancing
£22m D Notes
£2.064bn

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. The broader stakeholder base
Government support?
The broader stakeholder base
Constituency MP’s
ORR
RMT
Shareholders
Banks
Bondholders
Employees
Passengers

19. Any Questions