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RISK SHARING FINANCE FACILITY Research Connection 2009

Prague 8 May 2009

Anna Krzyzanowska

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Risk-Sharing Finance Facility (RSFF)

Introduction

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651.4China753.3Japan642.6US551.8EU-27

R&D funded by private sector (%)R&D investment (%GDP)

651.4China753.3Japan642.6US551.8EU-27

R&D funded by private sector (%)R&D investment (%GDP)

EU-27

Russia

US

Japan

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2000 2001 2002 2003 2004 2005 2006

R&D intensity (%GDP) China

EU hampered by low private sector investments

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Risk-Sharing Finance Facility (RSFF):

The investment and financing gap• Despite increased FP 7 budget for 2007 – 2013 (EUR 54,6 billion), there is a lack of funding for excellent and top quality R&D projects at EU level

• Investment in R&D is crucial for Europe’s competitiveness and growth potential

• Lack of private investment in R&D has been identified as the single key factor for Europe’s relatively weak total investment in R & D

• R&D investment carries a high(er) risk and uncertainty; scarce financing resources in Europe for such risky projects (market deficiency)

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• December 2005 European Council:

“The European Council invites the Commission in cooperation with the European Investment Bank (EIB) to examine the possibility of strengthening their support for Research and Development by up to a maximum of EUR 10 billion through a financing facility with risk‑sharing components to foster additional investment in European research and development, particularly by the private sector.”

A political request to increase financial support to R&D

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Risk-Sharing Finance Facility Added value

An innovative financing mechanism to:• Foster increased private investment in research by improving

access to loan finance.• Risk-sharing between the Community and EIB to allow:

- Larger volume of risky lending to R&D

- Financing of riskier, but creditworthy projects• Generate a leverage effect so that the volume of extra lending

by EIB and its partner banks is a 4 to 6 multiple of the Community funds provided to the facility.

• Rely on an existing EIB facility (SFF), and therefore benefit from EIB’ s experience and management.

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Risk-Sharing Finance Facility (RSFF)

Implementation Strategy

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RSFF implementation strategyRisk categories

RSFF Risk Coverage Range

Moody's S&P and Fitch… …A1 A+A2 AA3 A-

Baa1 BBB+Baa2 BBBBaa3 BBB-Ba1 BB+Ba2 BBBa3 BB-B1 B+B2 BB3 B-

•RSFF is a debt based instrument not a grant

•Financing does not involve a subsidy element

•The facility does not concern risk capital such as venture capital

RSFF concerns companies or projects mature enough to demonstrate capacity to repay and service debt on the basis of a credible business plan.An external rating is not required.

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RSFF implementation strategyEligible project cost

Project capital expenditures in tangible assets.

Intangible assets:

Research staff cost

Incremental working capital requirements

Acquisition of Intellectual Property Rights

Multi-annual R&D budgets (typically 3-4 years)Financing up to 50% of total cost, except particular cases in line with EIB strategic orientations (ie: environment, renewable

energies; …)

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RSFF implementation strategyBeneficiaries of RSFF financing

Mid-Caps and large corporates (typically unrated / sub investment grade / turnaround situations)

SMEs

Research Institutes

Universities

Special Purpose / Project Companies

Research Infrastructure promoters

Any size and ownership

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Indirect loans / guarantees

Commercial bank

Beneficiary (promoter)

Refinancing/Guarantee

Loan

Direct loans / guarantees

Comm. bank(Co-finance)

Borrower (promoter)

Loan or Guarantee

RSFF implementation strategy Financing modes – individual financing

Loan

Guarantee

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Risk-Sharing Finance Facility (RSFF)

An approch to smaller projects

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SMEs: Complementarities between CIP and FP7 (RSFF)

Risk Capital1 CIP Resources (SME)2 RSFF (SME / MidCap)3

Entrepreneur, friends, family

Business Angels

Seed/Early Stage VC Funds

Formal VC Funds

Bank Loans and Guarantees

Seed / Start-Up Phase Emerging Growth Phase Development Phase

Facility: High Growth Innovative SME Scheme (GIF), Ecotech

Purpose: IP financing, technology transfer, seed financing, investment readiness

Target Group: VC Funds, Business Angels

EIF Product: Fund-of-Funds

Facility: CIP Guarantee schemes

Purpose: Growth financing for SMEs

Target Group: Formal VC Funds, CLOs

EIF Product: SME guarantees (loans, microcredit, equity/mezzanine, securitisation

Facility: RSFF

Purpose: RDI financing

Target Group: SMEs/MidCaps, Banks, PE Investors,

EIB Product: Loans (incl. Mezzanine), Funded Risk Sharing Facilities with Banks (Investors)

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EIB

BorrowerEIB

For loans of EUR 7.5 million or more - direct involvement by the EIB

BorrowerIntermediary

For all loans where borrowers wish to work with their own banks, in particular those of less than EUR 7.5 million - sharing of RSFF benefitswith intermediaries (e.g. through partial guarantees)

Refinancing/ Guarantee

EIB and its partner banks (intermediaries)

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Risk-Sharing Finance Facility (RSFF)

Results to date

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RSFF results and portfolio

Volumes: EUR 2.4 billion authorised by the EIB under RSFF by February 2009, of which 1.488 billion have already been signed (under EC window: 48 %, EIB window 52 %)

Main sectors financed so far: renewable energy technologies, engineering and automotive, life science and ICT, plus risk-sharing facilities with partner banks

Geographical spread: projects located in 14 countries by early 2009 (approved RSFF projects)

RSFF financing in the form of direct corporate loans, project finance to special purpose vehicles and risk-sharing arrangements for mid-cap / SME projects

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RSFF portfolioGeographical Spread – signatures until 30/11/2008

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And the crisis in all this?

• The current market sentiment:– (i) significant increases in credit spreads, – (ii) sharp decline in commercial bank financing supply due to funding

as well as capital constraints of banks in the market and – (iii) decreasing RDI investments due to expected economic down-

turn.

• The implications for RSFF are both positive (more projects) and negative (high mortality rate

• Market/business risk profiles increased significantly hence an increase in credit risk for new transactions but also for existing RSFF loan exposures.

• Execution time for new operations is expected to increase and sophisticated financial structuring to mitigate operational risks more and more important

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SMEs/Mid Cap – Facility StructuresApproved

Signature of the Automotive Supplier RDI Facility (loans and guarantees to RDI projects of SMEs and mid cap automotive suppliers in Germany; EUR 100m + EUR 50m) - RSFF

Approval of KfW Ipex Risk Sharing Facility (loans and guarantees to mid-cap companies in Germany; EUR 100m + EUR 50m) - RSFF

Approval of RZB Group Risk Sharing Facility (loans and guarantees to mid cap companies in Austria, Hungary, Romania; EUR 100m + EUR 70m) – partially RSFF

Approval of CS Risk Sharing Energy Efficiency (loans and guarantees to SMEs in the Czech Republic; EUR 100m + EUR 60m) – SMEs, non RSFF

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Risk-Sharing Finance Facility (RSFF)

Examples

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Solucar Solar Thermal Power project : Europe's first commercially operating power station using the sun's energy, in west of Seville (Spain)

€50-million RSFF loan to further develop a large scale application of Concentrating Solar Power (CSP) technology, generating electricity without greenhouse-gas emissions

Field of mirrors to concentrate solar radiation on a thermal receiver

www.solucar.es

Financing solar power

using indigenous renewable energy to contribute to combat climate change

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PharmaMar: Spain’s leading biotech company dedicated to developing innovative anticancer treatments from marine origin

Biopharmaceutical research & development in the areas ofoncology and orphan diseases Different forms of cancer targetted, including rare cancers 30-million RSFF loan

www.pharmamar.com

Innovative anticancer treatments helping bring 4 cancer drugs to the market

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AVL: Austrian family-owned specialist with strong reputation for producing fuel-saving technologies for powertrain systems

Offers research and development support to many major car manufacturers worldwide.

€30-million RSFF loan to help AVL extend powertrain R&Dand research in the areas of hydrogen fuel-cell technology, nanocomposites and engine technologies

www.avl.com

Cleaner engines improving energy efficiency

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Risk-Sharing Finance Facility (RSFF)

Information & contacts

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RSFF contact pointsEuropean Commission, DG RTD

Directorate B – « European Research Area: Research programmes and capacities »

Unit B.04 – « Regions of Knowledge and Research Potential »

– RSFF Sector

• Jean-David MALO, Head of Unit, (02 299 38 42)

• Martin KOCH

• Marie-Cécile ROUILLON

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RSFF contact pointsEuropean Investment Bank

Directorate for Operations in the European Union and Candidate Countries

Division: Action for Growth Instruments – Innovation 2010 Initiative (i2i)

• Heinz OLBERS• Pavla RANDOVA : + 352 4379 7307

RDI@eib.org

– http://www.eib.org/rsff

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Thank you for your attention