• Croydon & Lewisham Lighting PFI Case Study

    It’s no secret that local authority funding has been hit hard by the recession and subsequent Government spending reductions.

    This has prompted many councils, conscious of the need to protect and maintain vital services, to look for innovative partnerships with specialists in the private sector to deliver expertise and efficiencies.

    One of the infrastructure services which is increasingly being funded and managed in this way is street lighting, a crucial element of planned maintenance, which requires significant investment.

    Lloyds Bank, which has a strong track record of delivering tailored funding solutions in this area, leveraged this experience to work on a Private Finance Initiative (PFI) for one of London’s largest and most populated boroughs.

    50,000 responsibilities

    When Lewisham and Croydon Council looked at the most efficient and effective means of managing the 42,000 street lights and 8,000 road signs under its control, it decided to tender a 25-year contract for the services, which would be part-financed via a PFI grant from central government.

    These type of deals provide the combined security of a strong funding partner and a delivery specialist with the purchasing power, knowledge and expertise of supply chain management to create significant process efficiencies.

    The procuring authority, the Department of Transport, was seeking a quick close period for the contract and therefore certainty of funding and an ability to proceed rapidly would put a competing consortium in a strong position to secure the bid.

    For the tender, Lloyds Bank’s Infrastructure and Energy Finance team partnered with Skanska Infrastructure Investment UK Limited and John Laing Investments Limited, sponsors which we have developed a close relationship with after structuring and closing a similar deal for streetlight maintenance throughout the UK county of Surrey.

    The team drew on the crucial experience gained developing the debt package which funded a pioneering 25-year, £2.7 billion Private Finance Initiative (PFI) to support Birmingham City Council’s management of 2,500 km of roadway, around 100,000 street lights and over 850 bridges.

    The need for speed

    Stephen Cooper, Executive Vice President, Skanska Infrastructure Development, said: “It was clear from the outset that the major factors required to secure the Croydon and Lewisham contract were going to be experience and speed. Due to the strength of our chosen partners and through having a clear model with proven track record of delivery, Lloyds Bank was able to obtain credit approval for 100 per cent of the debt funding in a very short time frame."

    Acting as Mandated Lead Arranger, Interest Rate Hedge Provider, Agent, Account Bank and Security Trustee, Lloyds Bank developed a funding package which enabled Croydon and Lewisham Lighting Services Limited (the Special Purpose Vehicle established to deliver the contract), to win the tender in a highly competitive process.

    The total funding for the deal amounted to £83.4 million consisting of:

    Term loan (24 years and three months) up to £73.4 million
    Equity bridge facility (five years and six months) of £8.5 million
    Change in Law facility (24 years and three years) of £1.5 million

    Infrastructure and Energy Finance Director Tom Boam said: “Previous PFI-funded road and streetlighting schemes have proved an efficient and effective means of managing these assets over the long-term.

    “The Croydon and Lewisham deal showcased how our experience, relationships and ability to make quick decisions ensured there was a very solid deal structured on the table quickly ensuring that the project closing timetable was achieved to the satisfaction of both Council and Sponsors.

    “This project is an excellent example of the positives that PFI can bring to local authorities. The procurement was hard fought, ensuring that the councils achieved a highly competitive price. The project will replace old and inefficient lighting over a 5 year period with ongoing maintenance for a further 20 years, which will benefit local residents. The Council has secured a long-term relationship with an experienced service provider and will also benefit on the environmental front by being able to demonstrate a significant reduction in energy usage from their streetlighting assets.”

    Stefan Friedhoff, Relationship Director, added: “A transaction of this nature demonstrates the power of the Bank’s operating model, with our commitment to relationship banking at the heart of everything we do. The deal supported 2 key customers in delivering an important piece of UK infrastructure, and represents a good example of the Bank’s imperative to support the wider UK economy.”

6/21/2018 11:30:04 AM