Lovells acted for the Tube Lines consortium on the acquisition of Infraco JNP from London Underground, completed on 31 December 2002. It is the most high profile, politically sensitive and complex "Public Private Partnership" to date, involving approximately £2 billion of funding for the first 7.5 years. Lovells' advice covered all aspects of the tender process, which has lasted over three years. Lovells acted for Tube Lines, a consortium comprising Amey, Jarvis and UIC (an arm of Bechtel Enterprises). Tube Lines holds a 30 year service contract from London Underground Limited ("LUL") to provide maintenance and upgrade services for the Jubilee, Northern and Piccadilly lines infrastructure. It is also responsible for 100 stations, 340km of track and 250 trains, carrying 1.75m passengers every weekday, and has some 2,500 employees, most of whom were formerly staff of LUL.
Tube Lines will be spending £1.6m every day on the maintenance and modernization of the three lines, their stations, lifts and escalators; on upgrading tracks and signals; and on reducing delays and improving cleanliness. There will be major upgrades to the Jubilee and Northern lines by 2009 and 2011 respectively, and to the Piccadilly line in the second 7.5 year period.
Lovells' advice on the acquisition included:
- risk allocation under the service contract;
- the structure and financing of the deal;
- corporate governance issues;
- and a large number of specialist areas of advice.
(Fuller details in notes for editors.)
The Lovells team was lead by Mike Matheou* (project finance) and included five finance partners and 15 partners from other areas of practice in London and Brussels. (For full details, see notes for editors.)
Speaking for the Lovells team, Mike Matheou said:
"The London Underground PPP, which is unprecedented in its scale and complexity, not to mention its political sensitivity, is without question the most demanding project to date of my professional career. What better way to start the new year than by completing the acquisition on New Year's eve!
Our role as consortium counsel meant that Lovells was at the centre of negotiations on all the key issues, dealing with the public sector on the one hand and lenders on the other. It was up to us, working with our clients at Tube Lines, to find a politically acceptable way of solving the numerous intricate technical problems. I am particularly proud of our work in devising novel arrangements for handling the allocation of risk, for our ground breaking financing and intercreditor arrangements, and for the tailor-made completion arrangements we put together for LUL and the lenders."
Lovells has advised on a number of Public Private Partnerships, having acted also on the NATS PPP, the Channel Tunnel Rail Link, the PRIME project and numerous other deals in the transport, defence, healthcare, and government accommodation sectors.
Lovells' advice included:
Risk allocation: this work, which culminated in the transaction documentation with LUL, involved preparing bids, best and final offers, and negotiating the deal with LUL and the public sector.
Structure & financing: this comprised senior commercial bank debt which involved a large group of premier project finance banks; senior debt from the European Investment Bank (some portions of the commercial debt being insurance-wrapped by Ambac); mezzanine finance; shareholder funding through shares and loan notes, initially with an equity bridging loan; financing and intercreditor arrangements and liaison with rating agencies to ensure the lending deal was compatible with their requirements.
Corporate Governance: this work included shareholder agreements as well as the acquisition agreement.
The Lovells team (partners asterisked):
Finance team: Mike Matheou* was supported by Andrew Briggs* on transaction documents with LUL. Philip Robb* led the senior debt team, principally supported by Andrew Gallagher. Shibeer Ahmed* led the mezzanine work, principally supported by Paul Mullen and Steven Smith. Gavin McQuater* handled the shareholder and share purchase agreements, supported by Scott Tindall and Nick Churchward on ancillary documentation and logistics and also by Andrew Briggs*. Tauhid Ijaz* provided additional support on capital markets financing aspects.
Other specialist advice: The wider team included Catherine Allison* on equity bridge finance work; Philip Brown* on the equity subscription agreement and the completion arrangements with LUL and the lenders; Karen Hughes*, supported by Robert Hartley, on tax; Nick Bromfield*, supported by Ciara Kennedy, on the competition and procurement work; Jacques Derenne* and Thomas Jestaedt* on state aid; Jennifer McDermott* and Paul Dacam*, supported by Anna Riley and Diane Hamer, on judicial review issues (instructing David Pannick QC and Janvan Herberg of counsel); Louise Moore* on environmental law; Katherine Watts*, David Lane* and Dion Panambalana* on property law; and John Pearson* and Stephen Ito* dealt with pensions aspects, and David Harper* with employment and HR issues. Mike Matheou* (see finance team) also dealt on engineering and construction work, supported by Christopher Cross and Donald Warnock.