Tube Lines

Steve HurrellDirector of Finance

12 February 2009

About the Tube PPPOne of the largest transport capital infrastructure programmes in the world introduced to overcome decades of under investment and to introduce private sector disciplines to deliver to time and cost

Split between

Infrastructure (private sector)

Operations and fares (public sector)

30 year, output-based contract

Combines maintenance and upgrade responsibility

Critical work programme to deliver line upgrades

Role of the PPP Arbiter

About Tube LinesResponsible for the infrastructure – signals, trains, track,

stations, escalators, lifts – on the Jubilee, Northern and

Piccadilly lines

Tube Lines has:

7½ year investment programme of roundly £5bn

2008 annual turnover of roundly £1billion

3,000 employees

Almost 2m passengers travelling on our lines every day

Our assets• We support some of the world’s busiest

stations• Waterloo 67.4m people per year

• Tottenham Court Rd 30.8m people per year

• Leicester Square 29.5m people per year

• Northern Line is busiest railway in Europe• We maintain

• 325 kilometres of track

• 255 trains

• 100 stations

• 227 escalators and 88 lifts

• 2,395 buildings and structures

Output-based

Contract sets out targets and performance incentives/penalties

Tube Lines designs the programme appropriate to meeting these targets

• Whole life decisions

Delivering

• Sustainable programmes

• Focus on delivery times and quality of work

Measured against three key deliverables

• Being Economic and Efficient (“E & E”)• Uses Good Industry Practice (“GIP”)• Applies Whole Life Asset Management decisions (“WLAM”)

Practicing these demonstrates that Tube Lines is the Notional Infraco

Ultimately the PPP Arbiter determines if Tube Lines has achieved the key deliverables either as part of an Extraordinary Review or as part of the Periodic Review

Using a supplier independent model

• Metronet used its shareholders extensively in the supply chain

• Tube Lines has Secondment Arrangements which are

consistent with Shareholder and Lender objectives

• Tube Lines competitively tenders for all of its work and therefore can demonstrate market rates and therefore E&E

• Allows WLAM model to be delivered effectively

Whole life asset management

Output based contract allows whole life approach to the assets

• Long term planning

• Optimising maintenance andrenewals

• Decisions on timing and extent of interventions

Examples

• Northern line track programme

• Lifts and escalators

• Points and crossings

“Profit before Safety” – RMT 2000

10

Tube Lines Combined Employee/Contractor (RIDDOR) Lost Time Injury Frequency Rate (LTIFR)

0.13

1.40

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

2002 2003 2004 2005 2006 2007 2008

LTIF

R

Our Financing Structure

£19 m L/C Facility

£55m Safety Change

£200m Standby Facility

95% Guaranteed by TfL/LUL of the underpinned amount of £1.8bn

5% Project riskTerm Loan £1.526bn

NOT GUARANTEED

£1.800bn

Original Financing – Bank Debt

£135m provided by Mezzanine lenders

£19 m L/C

£55m Safety Change

£200m Standby

Term Loan £1.526bn

£1.935bn

£135m provided by Mezzanine lenders

Guarantee from TfL for 95% recovery ~ TfL credit rating = AA

Despite this, senior debt rated BBB+ (investment grade) reflecting TLL project risk

20+ banks formed the bank syndicate

Control regime around approval of contracts was significant + costly + time consuming

Needed to produce quarterly financial plans

Significantly more information demands

Much tighter covenants for defaults and breaches that could lead to draw stops

Drawdown consent quarterly from Technical Adviser

NOT GUARANTEED

Original Financing

£135m provided by Mezzanine lenders

Term Loan

£1,526.41m

Term Loan£1.526bn

Converted into corporate bonds

Refinanced facilities use the same debt service cash flows from the original debt facilities using a new company -TLF plc

Used Ambac’ AAA credit rating to wrap the £300m EIB debt

Senior debt split into tranches - with the A class benefiting entirely from TfL AA credit rating and viewed by DePfa as municipal risk

A1 notes funded over time to reduce “cost of carry” (Difference between deposit rate and borrowing rate)

Mezzanine replaced by C & D tranche notes

Refinancing

Term Loan

£1,526.41m

100% Guaranteed by TfL/LUL

Indirectly guaranteed by TfL/LUL as provided by Spens

Operating risk

£22m D Notes

£150m C Notes

£77m B Notes

£15m EIB B Loan

£285m EIB A Loan

£95m A-2C Notes

£1,146m

Class A-1 Notes

£19m L/C Facility

£55m Safety Change

£200m Issuer Standby Facility

£2.064bn

£55m Safety Change £55m Safety Change £55m Safety Change

Gross benefit of refinancing £132m

Less costs of £64m

Benefit shared between LU = £41m

Shareholders £27m

£0.26bn - £0.13bn = £0.13bn gross benefit of refinancing

Current Financing

£1.8bn

Private Finance and the Lenders management of risk in the PPP

Lenders take a proportion of project risk

Therefore

• we have a Technical Adviser appointed to review and report

• bi-annual financial forecasts• approval of key business decisions and contract

conditions• covenant compliance

Private finance v Public finance

• Distances some of the short term political interventions

• Can still suffer from party political policy• Creates a platform for project delivery• Introduces more effective project disciplines

(monitoring)• Lenders share in risk• Refinancing gains post construction risk are

now more fairly distributed

ORR

Constituency MP’s

RMTShareholdersBanksBondholdersEmployeesPassengers

Government support? The broader stakeholder base

Any Questions