Lovells has advised Tube Lines Limited (TLL) and Tube Lines (Finance) PLC on a £2.1 billion debt refinancing in the capital markets. The refinancing is unique in applying whole business securitisation techniques to a European limited recourse infrastructure project and is one of the most high profile and complex infrastructure project bonds ever launched. The deal closed today.
On 31 December 2002, TLL was transferred into private ownership and, simultaneously, entered into funding arrangements with a group of senior and mezzanine funders. The refinancing allows TLL to replace this initial funding package on more advantageous terms. In particular, the lower average cost of funds achieved by the refinancing allows TLL to release over £80 million in financial benefit to its stakeholders, of which 70% is made available to the public sector. (Further details of the structure of the refinancing are included in the notes for editors.)
Lovells advised on all aspects of the refinancing. The team was led by project finance partner Andrew Briggs. Capital markets partner, Tauhid Ijaz was responsible for capital markets aspects and Philip Robb, project finance partner, led the team structuring the underlying debt facilities and liaising with TLLs' existing lenders. Philip was supported by Andrew Gallagher, one of 15 new partners made up by Lovells on 1 May 2004. Tax partner Karen Hughes led a significant tax structuring team. (For full details of the wider team, see notes for editors.)
Lovells has been working with TLL and its shareholders since 1999 and advised on the original PPP transaction, which was 2002's largest PPP project and winner of IFLR magazines deal of the year.
Speaking for the Lovells team, Andrew Briggs said:
"The London Underground PPP is unprecedented in its scale and complexity and Tube Lines' funding requirements reflect this. Our main challenge was to strike a balance between two competing tensions on the deal: on one hand, the structural requirements of the market for an issue of this kind and, on the other, the need to work within the scope of the existing PPP risk profile. And throughout, it was vital to satisfy TLL, TfL and the public sector generally that the refinancing would in no way undermine the ability of Tube Lines to manage, maintain and upgrade the infrastructure of the tube. Lovells was at the centre of negotiations on all the key issues, working with Tube Lines, to provide innovative solutions for the novel issues the deal presented."
In addition to the original LUL PPP, Lovells has advised on all of the most recent high profile PPP's including the Channel Tunnel Rail Link, the expansion of the PRIME project and the SkyNet 5 deal, Project Finance magazine's deal of the year for 2003. Lovells' project finance team have also advised on numerous other deals in the transport, defence, healthcare, and government accommodation sectors. This is complemented by the firm's market leading structured debt capital markets experience. In 2003 alone, Lovells acted on 45 securitisations in an aggregate principal amount of more than £13 billion, including advising NATS on its £600 million project bond refinancing.
Andrew Briggs continued:
"Our experience in PPP deals is second to none and our structured debt capital markets practice is one of the strongest in the City. This transaction combines our expertise in these two core legal disciplines and demonstrates our market leading experience of project bonds."
Tube Lines is one of three companies responsible for the management, maintenance and upgrade of the assets and infrastructure of the London underground rail network following implementation of the London Underground Public Private Partnership. Tube Lines holds a 30 year service contract from London Underground Limited to provide maintenance and upgrade services for the Jubilee, Northern and Piccadilly lines infrastructure. It is responsible for 100 stations, 340km of track and 250 trains, carrying 1.75 million passengers every weekday, and has some 2,500 employees, most of whom were formerly staff of LUL.
The refinancing comprises a number of wrapped and unwrapped tranches of debt rated from AA to BB by Standard & Poor's. The financial benefit described above is achieved, primarily, by this tranching of TLL’s funding so that a significant (and most senior) tranche can rely completely for recovery on the support provided by Transport for London (TfL) for the Public Private Partnership (PPP). This support allows a significant proportion of TLL's funding to rated AA, which has positive impact on TLL's overall cost of funds.
The Lovells team (partners asterisked): ·
Core team: Andrew Briggs* was supported by Scott Tindall and James Larmour on overall co-ordination and negotiations with TfL. Tauhid Ijaz* led the capital markets team, supported by Julian Craughan and Natasha Williams. Philip Robb* led the senior debt team, principally supported by Andrew Gallagher*. Karen Hughes* led the tax team, supported by Robert Hartley, Mervyn Flatt and Lindsey Bainton*.
Other specialist advice: The wider team included Arran McCowatt on closing mechanics, Mike Matheou* and Gavin McQuater* on PPP issues, Andrew Carey* and Laurence Garside* on capital markets, Catherine Allison* on finance issues; Jacques Derennes* and Ciara Kennedy-Loest* on state aid and competition issues; and Jennifer McDermott* supported by Anna Riley on judicial review issues (instructing David Pannick QC and Javan Herberg of counsel).
Lovells international finance practice includes over 90 partners and more than 180 other fee earners in 16 offices worldwide, focused on four main areas:
banking
- business restructuring and insolvency
- capital markets
- project finance