Project Bond Initiative Aims To Unlock Capital For Infrastructure Projects

BMI View : The absence of project finance has been keenly felt across the European infrastructure space, with the volume of public-private partnerships ( PPPs ) severely depleted following the financial crisis. The challenges have been stacking up since 2008 to prev ent a return to pre-crisis boom. These challenges include the Eurozone crisis as well as the Basel I and II banking regulations placing capital requirements on banks' balance sheets. In order to help unlock funding, the EIB and the EU launched the Europe 2020 Project Bond Initiative. With the first bond announced on July 18 , it will be a key test to see if EIB credit enhancement is sufficient to draw investors back to Europe's infrastructure space.

The Europe 2020 Project Bond Initiative is a joint initiative of the European Commission and the European Investment Bank. The venture , launched in November 2012, aims to provide credit enhancement for infrastructure public-private partnerships ( PPPs ) , in particular Trans European Transport and Energy N etworks (TEN-T and TEN-E) and high speed broadband. The initiative works by providing credit enhancement to improve the credit quality of project bonds in order to attract institutional investors with high investment thresholds. It will do this by taking a subordinated debt in the project company, in order to elevate the credit quality of the senior debt.

The Project Bond Credit Enhancement (PBCE) is, in short, the process of taking subordinated debt and can be provided in two forms to a project company. The first is through a direct loan and the second is through a stand-by credit facility which can be drawn upon in the event that the debt service coverage ratio fall below a certain level, i.e. revenues are not sufficient to meet financial obligations. In both cases, the project company can apply for up to 20% of the senior bonds in PBCE, up to a maximum of EUR200mn.

Unlocking Capital Will Be Key To Reversal
Number of PPPs, Selected European Countries

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This article is tagged to:
Sector: Infrastructure
Geography: Europe, Europe, Japan, Europe, Europe

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