TAPPING INTO FINANCING OPTIONS DELIVERING GROWTH BY PARTNERSHIP Sharing UK Capabilities In PPP February 2014 Kingston, Jamaica

Options for funding - Options depend on what type of PPP, e.g., if design build operate (DBO), up front capital costs are financed by the public sector – so governments usual finance resources engaged (taxes, capital markets, etc.) -Example Yarls Wood immigration detention centre, England, a DBO PPP project -This is different to a design-build-finance operate (DBFO), where initial capital costs met by private sector -In such cases (i.e., as DBOs) the private portions of the public-private-partnership (PPP) are: (i) private sector expertise and (ii) single point of responsibility through project company. But not private sector funding.

Financing PFIs (Structure) Typical structure of a Private Finance Initiative (PFI) project: (i)special purpose vehicle (SPV) as Proj Co (ii)Hold Co/sponsors who will provide equity capital to Proj Co (iii)private sector finance into Proj Co (iv)key sub-contracts typically Construction Contract and Operation & Maintenance subcontracts

Financing PFIs (Categories) Categories of financing include: - Equity capital -Senior Debt -Mezzanine finance -Junior Debt -Enhancements (guarantees, LCs, partial risk guarantees, state support) -Hedging instruments (interest rates, currency, inflation risks) -Consider role of insurance (commercial, political risks)

Financing PFIs/Infra projects (Sources) Sources include: -commercial banks -bonds/capital markets; monolines -development finance institutions (DFIs) e.g., KfW (Germany), IADB, World Bank/IBRD, EBRD (Europe) -export credit agencies (ECAs) e.g., US-Exim, JBIC (Japan), KEXIM (South Korea), -multilateral financial institutions e.g., IFC, FMO (Dutch), EIB (European Investment Bank) -host country government

Role of institutions - Institutional investors (e.g., pension funds, mutual funds, insurance companies) -Privately placed or public bonds -Need for some form of credit enhancement (new mezzanine type approach) -Examples: -KPMGs Hadrians Wall Capital Fund (HWC) initiative- Salford social housing project, £72M by pension insurance institution, EU Project Bond Initiative (PBI)- Spanish Castor gas storage project -Prudential M&Gs Alder Hey hospital project UK using in-house mezzanine enhancement -ING PEBBLE bank structure- Netherlands Zaanstad prison project -Still monolines- Leeds social housing deal in the UK, Assured Guaranty, Norwegian bonds (predominantly energy projects) -View that institutions are the natural buyers of syndicated debt, but after construction

Financing after first financial close Usually after construction complete -Commercial bank refinancing -Private equity fund interest in secondary PPP market -Capital markets

Accounting treatment -Risk Distribution and Balance Sheet Treatment -Example ESA95 (Europe) manual on government deficit deals with whether a project will go on or off the Government's balance sheet. -European PPP Expertise Centre has developed extensive checklist for this -Differences in accounting under GAAP versus IFRS

Additional information - Financing process (timetable) - Parties (bank, agent, trustee, account bank, etc) -Documents (arranging mandate, term sheet/LoI, main finance agreement e.g., Facility Agreement or bond document/circular, intercreditor agreement, etc) - Grant of security interests -Covenants and monitoring; consequences

Contact Vanessa N. Rizzioli Telephone (London) : +44 (0) Mobile (London): + 44 (0) Mobile (Jamaica): + 1 (876)