New Models for Financing Infrastructure PPP’s: A...

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New Models for Financing Infrastructure PPP’s:A Commercial Project Lender’s Perspective

Bruno Mejean, Managing Director NORD/LB New York Branch

Day 2Session 10.1

PPPsPPPs in Infrastructure in Infrastructure

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Day 2Risks & Responsibilities

Output Based Aid

Session 6Service Standards,Tariffs & Subsidy

Session 7

Responsibilities& Risks

Subnational Projects

Session 8

Contingent LiabilityManagementSession 9

Combining EUFunding with Private

Finance

Day2

Mobilizing CapitalMarkets

Carbon Finance

Session 10

Alternative Financing

Session 10.1

Project FinanceLender’s Perspective

Session 10

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Agenda

– Introduction: Who is Nord/LB? PPP references

– Case Example: Tlalnepantla Waste Water Treatment Concession in

Mexico

– Case Example: Castrop-Rauxel Secondary School & Sport Halls under

the German Public Forfaiting Model

– Conclusions and Outlook

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Who is NORD/LB?

– 8th Largest German Bank (in terms of Equity) with a balance sheet of $267 Bn

– Landesbank of Lower Saxony, Saxony-Anhalt, Mecklenburg – Western

Pomerania and Bremen

– Focused on the Baltic Rim (with a 49% ownership in Bank DnB Nord A/S)

– 2007 Net Income of Euro 305MM (IFRS) with no subprime exposure

– Stable ratings of A (S&P) Aa2 (Moody’s) and A (Fitch)

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NORD/LB PPP References – Euro 1.6 Bn Portfolio in roads, mass transit, schools, hospitals, other facilities

– MLA and Co-Bookrunner in largest Road Privatization in the Americas to date:

MXP 37.1 Bn Red de Carreteral de Occidente in Mexico

– MLA and Co-Syndication Agent in first and largest Light Rail PPP Project in

the Americas: C$600 MM Canada Line in Vancouver

– Sole Arranger for Water Treatment Concessions in Mexico involving local

currency loans via interest rate, currency and inflation-indexed swaps

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Example: Tlalnepantla Waste Water Treatment Project in

Mexico Sponsors: OPDM WATER UTILITY of the

MUNICIPALITY of TLALNEPANTLA

Project: Construction and Operation of aWaste Water Treatment Facility (200liters/sec) to Recycle Water for IndustrialReuse. Project also Funds Survey andRehabilitation of Water Distribution Network toReduce Physical and Commercial WaterLosses

Total Amount = US$ 11 Million

New Models for Financing PPP’s Infrastructure:A Commercial Project Lender’s Perspective

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OPDMWATER UTILITY ofthe MUNICIPALITYof TLALNEPANTLA

• MEXICAN FINANCING

INSTITUTIONS

• MEXICAN INSTITUTIONAL

INVESTORS

WATER AND SANITATIONSERVICES

TRUST

issued BONDS

(Certificados Bursátiles)TARIFF

USERS

CREDIT ENHANCEMENT

(DEXIA Letter of Credit)

MUNICIPALITY of

TLALNEPANTLA

IFC Counter-guarantee


Tlalnepantla Contractual Structure

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Municipality of Tlalnepantla

OPDM Water Utility

Mexican Trust as legal Issuer: BancoSantander Mexicano

Credit Enhancement: Dexia

Participant with Dexia: IFC

Arranger: Protego

Placement Agent: Deutsche Bank & Santander

Mexican Institutional Investors

Project Participants


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Structure / Size -- First Transaction of its kind….

Municipal Risk

New Funding Source – Domestic Capital Markets

But on the Positive Front……

Solid Credit Rating of Municipality

IFC’s Involvement

Deepening Institutional Investor Pool

Challenges


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Municipal Water Utility’s Bond (rated AAA.mx):

10-year MX$95,900,000 ( ~29 Million UDIS)

5.5% per annum in UDIS (UDI – Inflation adjusted Unit)

Repayment Source: Municipal Water Tariffs (Δ annually)

Back Stop provided by the Municipality (rated AA.mx)

No Sovereign Guarantees nor Federal Tax Transfers Provided

Bond’s Partial Credit Guarantee: 90% at closing

- Letter of Credit provided by DEXIA (NY Branch)

Credit Enhancement Risks shared by:

- DEXIA (US$5.3 million) and IFC (US$3 million)

Project Finance features: escrow accounts, debt service reserve, cash sweep

Financing Structure


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Inflation-Index Example

Loan Disbursement: May 15, 2003

First Repayment: Nov. 15, 2003

Value of UDIS on May 15, 2003 = MX$3.269486

Value of UDIS on Nov. 15, 2003 = MX$3.318374

Loan Amount = MX$95’900,000 = 29’331,827 UDIS (on May 15, 03)

Amortization (1st. Repayment):

Semi-Annual Payment = 1’466,591 UDIS

Interests: 5.5% p.a. = 806,625 UDIS

TOTAL Payment = 2’273,216 UDIS x $ 3.318374 UDIS (on 11/15/03)

= MX$7’543,380.00


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Avoids FX related Risks (“Original Sin”)

First Mover Advantage

Low Risk Given Underlying Credit Profile,as well as IFC’s Involvement

Market Niche with significant potential

Project’s Positive Attributes


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Transaction is attractive from an international bank’sperspective due to the unfunded credit enhancement

Municipal credit standing and Dexia/IFC support arethe key elements

The pricing is attractive only so long as the creditenhancements remain undrawn

Transaction size should be larger due to complexityand documentation

Observations

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New Models for Financing Infrastructure PPP’s: A Commercial Project Lender’s Perspective

Case Example: Design, financing and construction of a secondary school and three sport halls in Castrop-Rauxel, Germany

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Castrop-Rauxel: Project Details

– Awarding authority: City of Castrop-Rauxel

– Construction company: MBN Bau AG

– Planning/Architects: pbs Planungsbür Rohling AG

– Financing: Sparkasse Osnabrück / NORD/LB Girozentrale

– Total Cost: ca € 12 Mio

– Concession period: 30 years (plus 15 months construction)

– Financing structure: Public Forfaiting


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Castrop-Rauxel: Project Structure

Assignment of Compensation

Payments(Forfaiting)

Receivables (Present Value)

Waiver of future claims („Einredeverzicht“ )

RepaymentTurnkeyconstructioncontract

Sparkasse Osnabrück

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2

3

Compensation(Unitary Charge)


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Castrop-Rauxel: Public Forfaiting

• Public Forfaiting = Sales agreement for future receivables

– Purchase price: Compensation payments + Interest + VAT

– Seller: MBN Bau AG

– Obligor: city of Castrop-Rauxel

– Buyer: NORD/LB and Savings Bank Osnabrück

• Monitoring of performance conducted by the public sector

• Attractive / achievable solution for mid cap companies:

– streamlined transaction process, due diligence without external advisory

– easy equity requirements


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Projects CompletedPublic Private Partnership

Task Force

14,30%Sep 0674Justice buildingState Sachsen (Chemnitz-K.)

Sports halls

District Office

City hall

Swimming pool

Schools

Schools

Vocationalschools

Kreishaus

Schools

Schools

Learning centre

Schools

Schools

Schools

Schools

Schools

Schools

Project

15,00%Jun 046,5City of Münster

20,00%Aug 0511,5Bodensee district

13,50%Sep 0416City of Gladbeck

20,00%Apr 0510,8City of Leimen

21,00%Feb 067Barleben borough

18,40%Aug 058,4City of Achim

15,00%Jun 0526City of Leverkusen

8,00%Sep 0420Unna district

10,00%Mrz 0511City of Bedburg

5,00%Jun 0410Gütersloh district

25,00%Jul 0342City of Frankfurt am Main

9,30%Aug 0413City of Witten

18,10%Nov 04100Kreis Offenbach (Los Ost)

19,30%Mrz 04100Offenbach County (Los West)

10,30%Feb 0415Rhein-Erft-Kreis

15,00%Jan 0424City of Monheim

10,00%Apr 0534City of Köln

EfifciencyFinancial

CloseCapex €mAwarding authority

New Models for Financing Infrastructure PPP’s: A Commercial ProjectLender’s Perspective

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Conclusions & Outlook– Local currency funding mechanisms

need to be promoted morevigorously in Emerging Markets

– Bilateral & Multilateral DevelopmentFinance Agencies should focus onproviding long-term currency andinflation hedging tools

– Ditto with sub-sovereign creditenhancements

– Very long-term financing in EM couldideally rely on the World Bank PartialGuarantee Program

– The private sector is best suited tobring efficiency and capital

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THANK YOU!

PPPs in Infrastructure

Bruno Mejean, Managing DirectorNORD/LB New York Branch

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Contacts

For comments or further details contact:

Penny Williams [email protected] Mejean [email protected]

Cledan Mandri-Perrott [email protected] Escobedo [email protected] Stiggers [email protected] Name [email protected]/org

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Infrastructure Project Finance References

Warnow-crossing

EUR 215.8 Mio.

Lead Arranger

First privately financedtraffic project in Germany

Niedersachsen-stadion Hannover

EUR 63.84 Mio.

Adviser / Arranger

Modification and operationof a soccer stadium

Realschule inCastrop-Rauxel

Construction and operationof a secondary school

EUR 12.5 Mio.

Adviser / Arranger Arranger

Construction of a communitycentrein Hannover

Factoringfor home advancement and

land acquisition

Lower Saxony‘scommunities

factoring

ArrangerEUR 51 Mio.

Financing of a soccer stadium

Arranger

Volkswagen ArenaWolfsburg

Construction and operation of a prison Construction and operation of

a ring-roadArranger

EUR 70 Mio.

CommunityHarsewinkel

EUR 12.35 Mio.

Arranger

Burg Madel

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Refurbishment of a nurseryin Lübz

Arranger

Construction and operation ofthe „Heinrich-Böll-Foundation“

in BerlinEUR 12 Mio.

Adviser und Arranger

Construction and operation ofan educational institution EUR 92 Mio.

Financing of a tunnel

Arranger

Construction of agrammar school

Arranger

Construction and operationof various schools

Schools inFrankfurt/Main

EUR 108.5 Mio.Arranger

Refurbishment,construction and operation

of 4 schools

Comprehensive schoolin Köln Rodenkirchen

EUR 47.5 Mio.Arranger

Construction andoperation of a school

Welfenakademie inBraunschweig

Arranger

Arge Tunnel Burgholz

EUR 42 Mio.MLA

School package I inMagdeburg

School inBleckede

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InfraspeedPrivately financed

construction and operationof a high speed link in the

Netherlands

EUR 1,178 Mio.

Lead Manager

LusoscutPrivately financedshadow toll road

in Portugal

EUR 723.5 Mio.

Arranger

Norscut

Privately financedshadow toll road

in Portugal

EUR 1,007 Mio.

ArrangerEUR 215,8 Mio.

Lead ArrangerEUR 195 Mio.

Senior Lead Manager

Europpass

Electrical tolling systemfor trucks on motorways

in Austria

Privately financedtoll road project

in Poland

A2-sectionBerlin - Warsaw Scutvias

Glasgow Schools

Privately financedroad construction project

in Portugal

Refurbishment andmaintenance of all

secondary schools inGlasgow

EUR 847.6 Mio.

Co-Arranger

GBP 339 Mio.

Club ParticipantEUR 882 Mio.

Co-Arranger

Airport Prague

CZK 10 bn.

Arranger

Construction ofNorth terminal 2

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Airport Warsaw

Extension of terminal 2

USD 215 Mio.

Co-Arranger

E39 LyngdalFlekkefjord

NOK 1.31 bn.Senior Lead Manager


in Norway

Phyrn-CorridorZagreb-Macelj

Lead Arranger / Underwriter

Privately financed toll motorway in Croatia


in Great BritainGBP 750 Mio.

Arranger

Premier

Prisons

Design, construction andmanagement of 5

juvenile detention centres in Great Britain

GBP 217 Mio.

Lead Manager

MadridRadial 3 & Radial 5

Privately financedtoll roads in Spain

EUR 668.5 Mio.Co-Arranger

EUR 940,5 Mio.

Lead Arranger

Privately financedtoll motorway in France

Construction andoperation of two primaryand secondary schools

EUR 141 Mio.

Arranger

Schools North-Ayrshire

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Construction and operationof a waste disposal plant for4 urban districts in the East

of London

EUR 195 Mio.Arranger

Construction andoperation of 6 schools


Construction andoperation of ahospital in Hull

EUR 34 Mio.Arranger

Hull MaternityHospital

Construction and operationof 6 secondary schools


Kent EducationPartnership

Construction andoperation of a waste-fuelled power station


Refurbishment and partoperation of the London

Underground Infrastructure(3 projects)EUR 20.8 bn.

Arranger

Kent EnviropowerConstruction and operation oftwo primary and secondary

schools


Construction and operation of8 primary schools

in Scotland

EUR 54 Mio.Arranger

Leeds City Council

Schools East-Ayrshire Metronet Tubelines

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Construction and operationof a waste disposal

in Dumfries & Galloway

EUR 53 Mio.MLA

Construction and operation of51 primary and secondary

schoolsEUR 351 Mio.

Arranger

Construction and operation ofa satellite communicationsystem for the MoD/UK

EUR 1.94 bn.Arranger

Paradigm SecureCommunications

Construction and operation of3 schools in Wiltshire

EUR 62 Mio.Arranger

Construction and operation ofthe traffic information system

in EnglandEUR 103 Mio.

White Horse EducationPartnership

Construction andoperation of a primaryand a grammar school

Vildbjerg / DK

EUR 18 Mio.Investor, adviser and

arranger

Arranger

SchoolsNorthamptonshire

Traffic InformationSystems

Refurbishment andoperation of military

barracks

Munich / Germany

EUR 60 Mio.Arranger

Construction and operation ofhousing in 30 locations for

LeedsEUR tbc Mio.

Arranger

Leeds IndependentLiving Accommodation

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Financing of aport portfolio

USA and Latin America

USD 2,400 Mio.Arranger

Construction and operationof the Sea to Sky Highway

Vancouver

CAD 498 Mio.Lender


USA

USD 625 Mio.Lender


Montréal

CAD 372 Mio.Lender


USA

USD 955 Mio.Sub-Underwriter


USA and Canada

USD 1,880 Mio.Lender

Construction and operationof a light rail connection

British ColumbiaCAD 600 Mio.

Co-Lead-Arranger &Swap Provider

Construction and operationof Autoroute 25

Montréal

CAD 270 Mio.Lender

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Financing of a motorwaySydney

AUD 1,8 bn.Lead Manager

Construction of a Petro-terminal

Singapore

SGD 20 Mio.Arranger

Financing of a motorway

Brisbane

AUD 580 Mio.Lead Manager

Financing of a motorway

Brisbane

AUD 580 Mio.Lead Manager

William R. BennettBridge

Construction of OkanaganLake Bridge Project

British Columbia

CAD 145 Mio.Co-Financial Advisor

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THANK YOU!

PPPs in Infrastructure

Bruno Mejean, Managing DirectorNORD/LB New York Branch

New Models for Financing Infrastructure PPP’s: A...

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