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Tube Lines Steve Hurrell Director of Finance

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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

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