3
may
2014
infrastructure
investor
When the European Investment Bank’s
(EIB) Project Bond Initiative was
launched towards the endof 2012, it was
with the lofty ambition of “re-opening
capital markets as a source of financing
for crucial transport, energy and com-
munications infrastructure” according
to an EIB statement at the time.
The initiative, which offered credit
enhancement as a way of luring institu-
tional investors, was one of a number of
solutions inboth the public andprivate
spheres that aimed to stimulate long-
term infrastructure financing in the
wake of the Crisis and the subsequent
pressures on traditional bank lending.
The first project bond to derive
from the initiative was the one applied
to the 30-year concession to construct
and operate the underground offshore
Castor gas storage facility off the coast
of Castellon in Spain. The project,
which makes use of a depleted oil
reservoir, is regulated according to a
Regulated Asset Base (RAB) scheme by
which payments come from the Span-
ish gas system.
According to the award submission
from French bank Natixis, the deal
meant that developers and grantors
could now consider project bonds as
“a viable and feasible financial alterna-
tive to long-term bank debt, and not
just a theoretical option”.
It added: “A lot has been said
in relation to the natural fit between
investors’ needs (long duration assets)
and what infrastructure could offer
them but few real examples reached
financial close before Castor.”
The judges agreed, while also
taking into account the time and effort
that the structuring banks must have
put into educating investors about the
new product and its risk/reward pro-
file, as well as the hefty €1.4 billion deal
size in what was still a volatile market
environment.
Since the deal was signed, unex-
pected seismic activity near the facil-
ity has raised question marks over the
future of the project and prompted
Fitch Ratings to give the bonds “ratings
watch negative” status. Among the pos-
sible outcomes is that the government
may terminate the concession.
While taking these developments
carefully into account, the judges came
to the conclusion that the award should
be granted based on the innovations
of the deal at the time of signing and
the prospect that it helped to open up
access to the asset class for long-term
investors. While troubling, the subse-
quent issues faced by the project were
not seen to be reason for a changed
decision.
n
Credit enhancement from the European Investment
Bank was in the realm of theory until a certain
Spanish deal made it reality
The project bond
breakthrough
BANKING AWARDS FOR EXCELLENCE 2013
CASTOR GAS STORAGE
Category:
European energy
Winner:
Castor Gas Storage
Nominated by:
Natixis (structuring bank,
joint book-runner, rating adviser)
Other participants included:
European
Investment Bank (credit enhancement
provider); BNP Paribas, Bankia, Credit
Agricole, Caixa Bank, Santander,
Societe Generale (bond issuers); ACS
Group (sponsor); Dundee Realty Cor-
poration (sponsor); Cobra Instalciones
y Servicios (developer); Gaffney Cline
Associates (technical adviser)
Date of transaction:
25th July 2013
Size of transaction:
€1.4bn
“Pushes the boundaries. It may be ordinary
gas storage rather than the Holy Grail
of carbon dioxide but it’s still far from
straightforward to do this kind of thing.”
“Not many deals like this have been
done before and it turns the ‘jaw jaw’ of
2012 [about project bonds] into serious
business.”
“The project has had setbacks but if it’s
structured right in a project finance sense
there should be wriggle room.”
Honourable mentions in this category:
Cambridge University Hospitals NHS
Foundation Trust Energy Centre
(nominated by Aviva Investors)
London Array Offshore Transmission
(nominated by Blue Transmission
consortium)
Butendiek – wpd Wind Farm
(nominated by UniCredit Bank)
WHAT THE
JUDGES SAID:
