New loan guarantees for TENs
By Richard High07 March 2008
The European Commission and the European Investment Bank (EIB) have set up a new financial instrument designed to increase private sector investment in the Trans-European Network (TEN) infrastructure schemes. The Loan Guarantee Instrument for Trans-European Transport Network Projects (LGTT) is designed to mitigate against the risk of low toll revenues in the first few years of projects’ operation.
The Commission and the EIB are each contributing € 500 million of capital to set up the LGTT fund. This is intended to support € 20 billion of senior debt on TEN schemes during the ‘ramp-up’ phases of operation when traffic volumes can be low. By partially underwriting borrowers debt in this way, the Commission and EIB hope to improve the credit rating of loans made to TENs projects, making it cheap for the private sector to borrow and finance schemes.
Rules on LGTT allow it to be used as a stand-by guarantee for up to 10% of a projects senior debt, although this can be increased to 20% in exceptional circumstances. A maximum of € 200 million per project has also been set. The ‘ramp-up’ period covered by LGTT is defined as up to five years (seven in exceptional circumstances) from the project opening to traffic.
Speaking at the signing of the LGTT agreement, Commission vice-president Jacques Barrot said, "LGTT is a significant new instrument for financing European infrastructure. Not only are we making this innovative instrument available to the market today, but we also reiterate that private participation in the financing of transport infrastructure of European interest is welcome and needed. For some projects, a partnership between the public and the private sector can prove to be the most efficient way forward. The new guarantee instrument, unlocking billions of new investment for TEN-T, is a powerful tool to facilitate such partnerships."
EIB president Philippe Maystadt added, "The LGTT will provide significant additional risk capital that should facilitate and accelerate private sector investment in TENs. It is in addition to the TENs Budgetary Resources from the Commission and existing loans from EIB.