37
may
2014
infrastructure
investor
ING’s PEBBLE, a so-called
“open source funding
format” for greenfield
project finance, was one
of the initiatives launched
in the wake of the finan-
cial crisis to breathe life
back into the market by allowing insti-
tutional investors to provide long-term
financingwhilenotmoving too far from
their comfort zones.
That, at least, was the theory. Then,
in September last year, came the prac-
tice. The PEBBLE structure was fully
deployed for the first time on the Zaan-
stad Penitentiary transaction, involving
the design, build, financing, mainte-
nance and operation of a new peniten-
tiary forover 1,000detainees inWestzaan,
North Holland.
In broad terms, PEBBLE seeks to
bring banks and institutional investors
together as co-investors for the fund-
ing of greenfield projects. The idea is
that pairing long-dated institutions with
credit-enhancing bank debt will allow
them to take direct greenfield project
risk from the point of financial close.
Specifically, PEBBLE – which was
honed by ING together with law firm
Allen &Overy – seeks to bring together
banks providinga subordinatedfirst-loss
tranche to cover the early phases of the
project lifespan with institutions provid-
ing longer-term liquidity.
In the case of Zaanstad, ING and
NIBC provided 15 percent of the debt
as a seven-year first-loss protection sub-
ordinated loan to guarantee the other
tranche. The subordinated loan is paid
back first if the asset is performing,
while it is used to absorb losses if the
asset underperforms or
defaults. After the end of
construction, cash flows
are directed to pay back
the subordinated loan.
The long-term fixed-
rate debt accounts for
the remaining 85 percent of the total
debt and was provided by institutional
investors.
INGhailed thedeal as the “first true
syndicated[greenfield]PPP transaction
with long-term project finance under-
written since the financial crisis”. It was
alsoa speedyprocess, havingbeenunder-
taken ina two-monthplacement window.
Inmaking its submission, INGnoted
that 100 percent of the long-term fund-
ing was ultimately provided by the insti-
tutional investor market with 28-year
unrated funding subscribed to by both
pension and insurance fund sources.
Crucially, as far as the judging panel
was concerned, this was a genuinely new
financing technique being deployed for
the first time and thereby helping to
openup themarket to a broader range
of financing possibilities.
For ING, themost important thing
was proof of concept since other poten-
tial solutions have faded from view as
both public and private sectors alike
dashed to try and fill the project
finance funding gap in the wake of
the financial crisis.
It making its submission, ING
pointed out that the Zaanstad deal
provided “an important benchmark for
future transactions” and that investor
appetite for long-term infrastructure
assets through the PEBBLE structure
was now confirmed.
n
A new platform bringing together banks and
institutional investors achieved its first application
through a prison PPP
PEBBLE makes a splash
BANKING AWARDS FOR EXCELLENCE 2013
ZAANSTAD PENITENTIARY CENTRE
Category:
European social infrastructure
Winner:
Zaanstad Penitentiary Centre
Nominated by:
ING (underwriter, book-
runner, arranger, swap provider, account
bank, structurer)
Other participants included:
NIBC (joint
book-runner); Pi2 consortium, wholly
owned by Ballast Nedam (project
sponsor); Royal Imtech (project
sponsor)
Date of transaction:
29th September 2013
Size of deal:
€195m
“Social infrastructure should always have a
social benefit, so the key criterion here is
bringing liquidity to the market.”
“This deal shows really positive thinking
about how to make a variety of financing
structures available to sponsors.”
“This gets my vote as there is more to
commend the project than just the
financing but it is also the most innovative
compared to the others with regard to the
financing.”
Honourable mentions in this category:
Royal Liverpool University Hospital
(nominated by Lloyds Banking Group)
West London Waste
(nominated by RBC
Capital Markets)
Hertfordshire University Student Accom-
modation
(nominated by RBC Capital
Markets)
WHAT THE
JUDGES SAID:
