• High Speed Rail Network Drives Forward

    business-insight-std-greenline

    by Iain MacDonald, Head of Economic Infrastructure

    The UK rail infrastructure industry has huge growth prospects, largely driven by the UK government’s commitment to using high speed rail as a means of driving economic growth, reducing congestion and minimising the environmental impact of transportation.


    Recognising this, when the government announced its intention to sell a 30 year concession to own and operate the HS1 network in the first significant privatisation under the coalition, a number of investors entered a competitive bidding process to acquire the high quality asset.

    The deal was won by a consortium of Canadian pension funds, which recognise the value of infrastructure investments given their long-term, steady returns and the increased diversification of risk it offers.

    Lloyds Bank Commercial Banking (“Lloyds Bank”) played a lead role in the financing of this £2.1 billion concession.
     

     

    Gearing up

    High Speed 1 Ltd (HS1), formerly known as the Channel Tunnel Rail Link (CTRL), is a high-speed railway line running for almost 70 miles from London to the British entrance to the Channel Tunnel.

    HS1 connects Eurostar services between London and European destinations as well as high speed services between London and Kent, and is used every year by over 14 million international and domestic passengers.

    The line was transferred to state ownership in 2009 and in June 2010 the government, via London & Continental Railways, announced its intention to sell a 30 year concession to own and operate the HS1 network.

     

     

    On track for delivery

    In early November 2010, two Canadian pension funds won the concession for £2.1 billion.

    Borealis Infrastructure is the infrastructure investment arm of the OMERS worldwide group of companies, which is one of Canada's largest pension plans. It has approximately C$48 billion in net assets invested on behalf of approximately 400,000 active and retired municipal employees, with more than 900 local government employers in Ontario.

    Ontario Teachers' Pension Plan is the largest single-profession pension plan in Canada that invests the fund's assets and administers the pensions of 289,000 active and retired teachers in Ontario.

    A number of major global infrastructure firms took part in the competitive tender process and the deal reached financial close just 14 days after the announcement of the preferred bidder, on 18 November.

     

     

    Fuelling the transaction

    Lloyds Bank has a strong track record of funding major transactions in the rail infrastructure industry and in this deal, acted as Mandated Lead Arranger (MLA), Agent, Security Trustee and Hedge Provider in a club of nine banks.  This reflected close collaboration between teams from Project Finance, Structured Debt Syndicate, Sales & Derivative Structuring, Debt Capital Markets, and Major Corporate.

    Lloyds Bank were one of the top-tier arranging banks with a ticket size of £163m out of a total lending amounting to £1.375 billion, comprising a £860 million five year senior debt facility, a £450 million seven year senior debt tranche, as well as a working capital facility of £65 million.

    The finance package is structured to encourage refinancing in the capital markets. BNP Paribas, Export Development Canada, JP Morgan, National Australia Bank, RBC Capital Markets, Royal Bank of Scotland, Santander and Scotiabank also funded the transaction.

     

     

    Viewpoints

    Philippe Busslinger at Borealis, said: “This acquisition supports OMERS long‐term strategy to diversify internationally and we view the UK and Europe as primary markets in meeting this objective,” said Michael Rolland, President and Chief Executive Officer of Borealis Infrastructure. “HS1 operates in an attractive and stable regulatory environment with good long term visibility on inflation linked cash flows.”
     
    Iain MacDonald, Head of Infrastructure Concessions, Project Finance, at Lloyds Bank, said: “The acquisition of this high quality infrastructure asset provoked intense competition, given the strength of the underlying risk profile and asset demand. 

    “The deal represented the first significant privatisation under the UK coalition government and was a fantastic result for both UK plc and for the future of high speed rail and ultimately its passengers.

    “We were proud to play a key role in its financing and hope that the success of this project will pave the way for future opportunities in the industry, which we are keen to lend our funding expertise to.”


     

2/24/2018 10:21:28 PM