1. Financial Instruments 2014-2020
Doing more with less
NFOŚiGW
Luxembourg-Warsaw, 17 April 2012

2. What are EU Financial Instruments?
Equity/risk capital: e.g. venture capital to SMEs with high growth potential or risk capital to infrastructure projects Guarantees to financial intermediaries that provide lending to e.g. infrastructure projects, SMEs, persons at risk of social exclusion Other risk-sharing arrangements with financial intermediaries in order to increase the leverage capacity of the EU funds or a combination of the above with other forms of EU financial assistance (technical assistance, performance based rebates, …) 2 2 2

3. EU Financial Instruments: Why?
An appropriate tool in times of budget constrains
3 types of benefits
Multiplier effect – multiplication of scarce budgetary resources by attracting additional finance
Policy impact – financial intermediaries pursue EU policies
Institutional know-how – EU can use the resources and expertise of financial intermediaries
A political priority (Europe 2020 strategy, Communication on a Budget for Europe 2020)
Effective and efficient way to support Europe objectives of smart, sustainable and inclusive growth 3 3 3

4. EU Financial Instruments: When?
Guiding principles include:
Addressing sub-optimal investment situations Funding gaps e.g. due to general economic uncertainty, high business/innovation risk, high transaction costs, asymmetric information
Ensuring EU value added
Effective targeting of policy goals
Catalytic effect on existing similar MS schemes or private investment, no crowding out
Multiplier effect
Attracting private investment greater than EU contribution 4

5. Financial Instruments 2007-2013: SMEs & Innovation
SME Guarantees (SMEG)
: approx. EUR 300m of EU budget generated 9.4bn of lending
SMEs reached, volumes are increasing fast
Target of SMEs is attainable
Equity: High Growth and Innovation (GIF)
: so far, EUR 344m of EU resources generated EUR 1.9bn of total investment volume, amounts growing fast.
190 SMEs covered so far
Risk-Sharing Finance Facility (RSFF):
EUR 2bn of EU and EIB resources expected to generate over EUR 10bn of lending to RDI projects. By end 2011 approximately EUR 5bn of lending already disbursed to final beneficiaries. Dedicated RSI facility for SMEs.
European Progress Microfinance Facility (EPMF, est. 2010)
by 2020, the EU contribution of EUR 100m is expected to have generated EUR 500m of micro-loans.

6. Financial Instruments 2007-2013: Transport & Energy
Loan Guarantee Facility for TEN-Transport (LGTT, est. 2008)
Conceived to absorb traffic risk during the ramp-up phase
EU and EIB share loan loss provisioning
EUR 500m of EU budget has generated EUR 12bn of project financing
Marguerite (est. 2010)
Equity fund for TEN-T, TEN-E and renewables
EUR 710m, of which EU EUR 80m stake
EU co-invests with BGK, Caisse des Depots, Cassa Depositi, ICO, EIB and KfW
European Energy Efficiency Fund (EEEF, est. 2011)
Mixed fund for debt and equity to energy efficiency investments in municipalities
EU invests EUR 125m in first loss piece
Co-investors EIB, Cassa Depositi and Deutsche Bank
Target size EUR m 6

7. Lessons learned
Need for simplified implementation modalities with streamlined rules.
Need for a clear and dedicated legal framework.
Increased coherence and consistency between instruments is necessary. Close coordination with Structural Funds.
More can be done to raise visibility and transparency of instruments.
New risk-sharing arrangements could achieve higher finance volumes.
Audits and evaluations carried out of existing innovative financial instruments are positive regarding their output. 7

8. Next MFF: Simplification and Transparency
Fewer financial instruments (from 13 to 6)
Larger financial instruments ensuring critical mass
Minimisation of overlap between instruments
Standardised contractual arrangements including management structures, reporting, fees…
More transparent to stakeholders
Budget: No contingent liabilities
Dedicated regulatory framework (Title VIII of the Financial Regulation) 8

9. Financial Instruments included in proposals for 2014-2020 MFF
Centrally managed by COM
Shared Management
Research, Development Innovation
Horizon 2020
Equity and Risk Sharing Instruments
EUR 3.5bn
Instruments under Structural and Cohesion Funds
EU level
Off-the shelf instruments
Tailor made instruments
Significant higher amounts than currently
Growth, Jobs and Social Cohesion
Competitiveness & SME (COSME)
Equity & guarantees
EUR 1.4bn
Creative Europe
Guarantee Facility
EUR 210m
Social Change
& Innovation
Micro-finance EUR 192m
Erasmus for all
Guarantee Facility
EUR 881m
Infrastructure
Connecting Europe Facility (CEF)
Risk sharing (e.g. project bonds) and equity instruments
Budget not yet decided 9

10. Current status and next steps
2011: Commission proposals were adopted
2012: Discussions in Council and Parliament on the legal framework (Financial Regulation, delegated act) as well as on the basic acts for the specific instruments
2013: Expected adoption of legal bases by European Parliament and Council, negotiations with IFIs, preparations for the roll-out
2014: Roll-out, instruments are operational 10

11. Conclusions Financial instruments
Well-tested, efficient and effective way of supporting growth, jobs and innovation.
Can attract private funding for public policy objectives. Needed in times of limited public resources.
Will play an important role in achieving the Europe objectives.
Promote best practices. 11 11

12. Mechanisms of financial Instruments12

13. Risk Sharing Financial Facility
RSFF provides debt finance to research and development projects through
directly to companies
indirectly through banks
EIB/EU fund in average 20% of the projects, remaining 80% come from banks
This multiplication / leverage is reached through Risk sharing
Own Resources
EUR 1bn
EUR 1bn
EIB (RSFF)
Approx. EUR 10bn
Debt Financing
Banks
Investors
Final Beneficiaries
Low/Sub Investment Grade 13

14. Rating enhancement in RSFF
RSFF finances sub-investment grade projects moving them to investment grade
It makes the project therefore bankable
RSFF loan is subordinated / junior to the bank's loans,
means in case of default it is served after the senior bank loan
Sub invstment grade company
Senior loan
Company's equity
Mezzanine finance 14

15. What is a bond?
Bonds are debt securities paying a fixed interest (coupon)
In comparison to other debt they are
tradable
rated
large ticket size
interesting for institutional investors
Bonds are issued by:
public bodies (sovereign, municipal bonds)
Companies
Special purpose vehicles 15

16. Europe 2020 Project Bond Initiative
Objectives
Increase financing available for large infrastructure projects
Establish debt capital markets as a complementary source of financing
Target areas
Transport
Energy
Broadband
How?
EU/EIB joint support to project companies issuing bonds to finance infrastructure projects
Form of support
Debt service guarantee or subordinated loan by EIB to ensure sufficient rating of the bonds
Result
More private sector financing attracted from the capital markets to finance key infrastructure projects
Potential investors
Long-term institutional investors – pension funds, insurance companies 16

17. Functioning of the Initiative
Designed to improve (or “enhance”) the rating of the senior debt of the project
Subordinated tranche of debt underwritten by EU and EIB share risk
Subordinated debt maximum 20% of total investment
Provides cushion for senior debt service if project risks materialises
Raises rating of the debt to a quality where it will be attractive to bond investors
Longer maturities more appropriate for project lifetime 17

18. Functioning of the Initiative
SPV
Project
Costs
Bond Issue and
underwriting
Project
bond Target
rating > A-
Project Bond Investor
up to 20% of total Bond issue
Sub debt %
Equity e.g. 15%
Sponsors or investors 18

20. European Energy Efficiency Fund
Fund (EEE F)
Objective: financing of projects in a local & public context
Scope: Energy efficiency, renewable energy and clean transport
Commercially managed fund, operating under market conditions
Debt and equity products, normally not offered by banks
senior loans with long duration ( 15 years) and grace periods
Junior/subordinated loans
Leasing
Forfeiting of receivables
(quasi-)equity participation in special purpose vehicles 20

21. Leasing and Forfaiting in EE
Examples of off-balance sheet financing for public bodies under constrains of borrowing
Leasing
Leasing of resellable installations like CHP installations, PV modules
Organised similar 'to sale and lease back'
Forfaiting for ESCOs
ESCO face high up-front capital demand and long pay-back period
ESCO can sell major share of future receivables at discounted rate after agreed milestones of investment
Energy performance contract as colateral for forfaiting loan 21

22. Structured Fund
The eeef is a dedicated investment vehicle founded as an Investment Fund with variable capital (SICAV)
In the eeef the EU takes the first loss piece to attract other public and private investors.
Target
Up to € 700m
Size at first closing
€ 265m
Notes (debt)
Senior – A Shares
Institutional investors
Public banks & institutional investors
EIB, CDP
Mezzanine - B Shares
€ 117m
EIB, CDP, Deutsche Bank
Public financial institutions
Junior/FLP - C Shares €
€ 23m EU EU
€ 125m 22

23. European Energy Efficiency Fund
Technical Assistance
Volume € 20m provided by EU
grants for project development cost – exclusively for projects financed by the Fund
Managed by fund manager Deutsche Bank at 'arm's length' to eeef 23

24. Thank you General information on innovative financial instruments:

25. Annex

26. EU financial instruments old and new
EQUITY INSTRUMENT FOR SMEs
High Growth and Innovative SME Facility (GIF) under the Competitiveness and Innovation Framework Programme (CIP) – approx. EUR 600m
GIF 1 – invests in seed, start-up and early-stage SMEs
GIF 2 – invests in expansion-stage SMEs
EQUITY INSTRUMENT FOR SMEs
EU Equity Financial
Instrument for EU enterprises’ growth and RDI
Equity Instruments for Research and Innovation
- Investments in early stage funds or funds-of-funds that invest in intellectual property, technology transfer or venture capital
- No exact allocation yet, up to 1/3 of EUR 3.5bn to be allocated to this facility and the RSI II facility for SMEs
Horizon 2020
Equity Facility for Growth
Investments in expansion stage funds or funds-of-funds that invest in venture capital
indicatively EUR 690m
COSME 26 26

27. DEBT INSTRUMENT FOR SMEs 2007-2013 DEBT INSTRUMENT FOR SMEs 2014-2020
EU financial instruments old and new
DEBT INSTRUMENT FOR SMEs
SME Guarantee Facility (SMEG) under the Competitiveness and Innovation Framework Programme (CIP) – approx. EUR 500m
Risk Sharing Instrument (RSI): A dedicated compartment for SMEs under the Risk Sharing Finance Facility, created in 2011 – EUR 120m
DEBT INSTRUMENT FOR SMEs
Debt Instrument for EU Enterprises’ Growth and RDI
Loan Guarantee Facility
Guarantees and securitisation on loans up to EUR 150,000
Indicatively EUR 746m
COSME
RSI-II Facility
Guarantees for R&I SMEs on loans above EUR 150,000
No exact allocation yet, up to 1/3 of EUR 3.5bn to be allocated to this facility and equity instrument for R&I
Horizon 2020
Cultural and Creative Sectors Facility (new)
Guarantees for loans to creative and cultural entities
EUR 210m
Creative Europe 27

28. EU financial instruments old and new
DEBT INSTRUMENT FOR LARGE R&D PROJECTS
Risk Sharing Finance Facility (RSFF)
under FP7
provides loans and guarantees to R&D projects
EU budgetary allocation to large projects and research infrastructures (excluding the SME compartment) approx. EUR 900m
DEBT INSTRUMENT FOR LARGE R&I PROJECTS
Loan & Guarantee Service for Research and Innovation
Loans and guarantees to R&I (non-SMEs)
No exact allocation yet (possibly approx. 2/3 of EUR 3.5bn)
Horizon 2020 28 28

29. EU financial instruments old and new
EQUITY AND DEBT INSTRUMENT FOR THE SOCIAL ECONOMY
European Progress Microfinance Facility (EPMF, est. 2010)
Guarantees and counter-guarantees for microcredit lending
Loans or Equity to microcredit institutions
EU Budgetary contribution EUR 100m
EQUITY AND DEBT INSTRUMENT FOR THE SOCIAL ECONOMY
Micro-finance and social entrepreneurship instrument
Guarantees, micro-credit, equity and quasi-equity to financial institutions that invest or lend to entrepreneurs, especially those furthest from the labour market, and social enterprises.
Proposed EU budgetary contribution
Access to microfinance EUR 87m
Social enterprise development EUR 96m
Capacity building EUR 9m
Social Change and Innovation 29 29

30. DEBT INSTRUMENT FOR STUDENTS
EU financial instruments old and new
DEBT INSTRUMENT FOR STUDENTS
Student Loan Guarantee Facility
Guarantees for student loans
EUR 881m
Erasmus for All 30

31. EU financial instruments old and new
INSTRUMENTS FOR INFRASTRUCTURE
Loan Guarantee Facility for TEN-Transport (LGTT, est. 2008)
EUR 500m of EU budget has generated EUR 12bn of project financing
Pilot phase for project bonds
EUR 230m budget for , currently being examined by Financial Counsellors and EP Budget Committee
EQUITY AND DEBT INSTRUMENT FOR INFRASTRUCTURE
Infrastructure financial instruments
(incl. Project Bonds initiative)
Equity instruments, such as investment funds with a focus on providing risk capital for actions contributing to projects of common interest;
Loans and/or guarantees facilitated by risk-sharing instruments, including enhancement mechanism to project bonds, issued by a financial institution on its own resources;
Thematic coverage: TEN-T, TEN-E and broadband
Any other financial instruments.
Exact budget not yet specified
Connecting Europe Facility 31

32. EU financial instruments old and new
COHESION POLICY
Currently approx. 5% of ERDF delivered through financial instruments
COHESION POLICY
In use of financial instruments in cohesion policy will expand to all thematic objectives and priorities foreseen by operational programmes, provided that economic viability of final recipients / repayment capacity of projects is demonstrated
Combination of financial instruments and support, e.g. grants, will be strengthened.
CSF funds may contribute to support financial instruments set up at Union level managed directly/indirectly by COM in line with FR. OP contribution to be ring-fenced for investments in regions and actions covered by OP
Cohesion Fund will for the first time be open to financial instruments
Volume of ERDF resources that could potentially be delivered through financial instruments could increase up to three times

33. Horizontal legal framework
Legal Architecture
Horizontal legal framework
Sector rules
Norm
Content
Basic act
FR Title VIII
(EP/Council Regulation)
Definitions, management modes, principles and conditions, limitation of liability, reflows, control, reporting, etc.
Contains a general authorisation the use of a financial instrument. May define type, duration, specific features or targets of the instrument envisaged.
The basic act may identify a specific entity entrusted with the implementation of the instrument
Rules of Application
(delegated act)
The delegated act is expected to supplement the FR in the following areas: combination of support, rules for direct/ indirect management, rules for fiduciary accounts, ex ante evaluation, management fees, etc.
Operational requirements (equity and debt platforms):
A standard set of rules, provisions and templates, including homogeneous detailed provisions on governance, monitoring, , financial parameters, delivery modes, rules for dedicated investment vehicles (DIV), etc.
Agreements with entrusted entities
Contractual conditions under which the Commission entrusts the implementation of a financial instrument to a financial institution in line with the above rules 33