Welcome to

Chris Scoble

Agenda

• Brief introduction to Orrick

• Models for Infrastructure Development

• UK example of PFI and PPP (London Underground)

Orrick Today

690 Lawyers

1,550 Total Staff

13 offices in 5 countries on 3 continents

Uniquely balanced within the US with an equal distribution of lawyers on both coasts.

Growing presence in Europe and Asia.

Strategically focused on high-value engagements in carefully selected practice areas, locations, and industry sectors.

13 offices in 5 Countries on 3 Continents

TokyoSan Francisco Silicon Valley

Sacramento

Pacific Northwest

Los Angeles

New YorkWashington DC

London

Orange County

MilanRome

Paris

Orrick at a Glance: Our Practices

FINANCE

• Bankruptcy and Debt Restructuring

• Energy & Project Finance

• Global Finance

• Leasing

• Public Finance

• Structured Finance

CORPORATE

• Compensation and Benefits

• Mergers and Acquisitions

• Real Estate

• Tax

LITIGATION

• Antitrust and Competition

• Employment

• Intellectual Property

Structured Finance

Source: The Bond Buyer, Tuesday, July 1, 2003

Public Finance

Energy & Project Finance

American Lawyer Dealmaker of the Year 2003

Nomination for Project Finance : Dan Matthews

SR125 Toll Road in San Diego (CA)

US$640 million Public Private Partnership

Represented lead bank arrangers

“A groundbreaking public-private project” (International Financial Law Review)

Changing Models for Infrastructure Development

Mary Rose Brusewitz

Challenges

•Growing need for infrastructure development: power, transport, water and waste

•Competition for capital and developing local markets

•Can basic services generate sufficient profit to attract private sector?

•Sustainability of profit-making by private sector for basic services

•Risk and responsibility allocation

Structural Models

•Traditional State-owned and –operated model

•Privatization and deregulation during the 1990’s

•Public Private Partnerships

•Contractual and concession models

•U.S. municipal finance

Range of options of PSP

Finance Techniques

•Sovereign finance

•Project finance

•Structured finance or securitization

•Private or public sector company balance sheets

•Role of multilaterals and development banks and agencies

Allocation of responsibilities

Option Asset Ownership

Operations & maintenance

Capital investment

Commercial risk

Duration

Service Contract

Public Public and Private

Public Public 1-2 years

Management Contract

Public Private Public Public 3-5 years

Lease Public Private Public Shared 8-15 years

Concession Public Private Private Private 20-30 years

BOT/BOO Private and public

Private Private Private 20-30 years

Divestiture Private or public and private

Private Private Private Indefinite (may be limited by licence)

Matching Models and Techniques

•Legal, political and financial environments

•Analysis of both successful and failed models, techniques and projects

•Some types of infrastructure more easily attract private sector interest and risk appetites

•Creativity: combining models and techniques

U.S. Model: Municipal Finance• Legal system promotes tax exempt financing and attracts ‘local’

and ‘retail’ capital

• Use of ratings or ‘balance sheets’ of States or municipalities to support infrastructure development with long term financing at comparatively low cost

• General obligations of States or municipalities with financial institution guaranty

• ‘Securitized’ tax or other directed revenues

• Results in combined participation of public and private sectors in a variety of areas including commercial and residential real estate development and small business support, as well as basic services

• Key: stability of legal and regulatory structures

London Underground PFI and PPP

Martin Stewart-Smith

What was PFI?• Public sector procurement to seek value for money by offering

the opportunity to the private sector

• Had to beat the “public sector comparator”

• Initial problems were

• Lack of institutional capacity• Lack of understanding of risk allocation• High transaction costs

• The fixes were

• Setting up of the Treasury Task Force• PFI Guidelines• Standardization of documentation• Risk matrices

LUL Seeboard Powerlink PFI

• Needed to upgrade the power supply to the underground (1997)

• Technical evaluation and bidding process

• Scope of the PFI project

• Decommissioning of dedicated power stations

• Lots Road and Greenwich

• Transfer of employees and certain LUL contracts

• Complex regimes of dependencies and variations

• Total project size of over $1.04 billion

• Separated ownership of the distribution network from LUL

• Successfully closed the financing in 1999

What is PPP?

•Public Private Partnership includes PFI as well as

• Outsourcing

• Marketing of irreducible spare capacity, under the Government's Wider Markets Initiative; and

• Strategic partnerships between Govt and key suppliers.

LUL PPP

•Separation between deep lines and ‘cut and cover’ lines

•Separation of track ownership from maintenance

•Creation of separate bid packages

• Various quality criteria as output driven contracts

• Obligation to raise finance

• Transfer of employees and contracts

Taking a good credit…

•Strong cash generator

•The securitized bond debate

•Keeping the network and maintenance together

•Splitting the financing from the operational arrangements

•Public Sector Borrowing Requirement

•Treasury comfort letter – ‘off balance sheet’ nature of the debt

•The Verdict?

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