38
infrastructure
investor
may
2014
There were several
takeaways from the
closing of the Univer-
sity of Hertfordshire
Private Finance Ini-
tiative (PFI) accom-
modation scheme,
but the most important was that for
the first time in Europe, institutional
investors got comfortable enough with
a greenfield infrastructure project to
fund it without recourse to third-party
credit enhancement.
For thosewith fondmemories of the
bygone £100 billion (€118 billion; $154
billion) European project bondmarket
that thrived when the monolines were
in business, the closing of the university
project witha41-yearunwrappedproject
bond was extremely good news.
The project was funded through a
combination of £145 million worth of
unwrapped index-linked bonds plus
sponsor equity. It achieved off-balance
sheet treatment for theUniversity as the
project company bore full demand risk
on both the occupancy level and rental
price of the accommodation.
In spite of this transfer of risk, the
project bonds were assigned anA- rating
by Standard and Poor’s (S&P), reflect-
ing what RBC Capital Markets – in
making its submission – described as
“the robustness of the funding struc-
ture and the various covenants that
were developed to make the project
deliverable”.
S&P itself noted the lower than aver-
age gearing (75percent rather than the
80 to 90 percent typical of PFI), a strong
debt service coverage ratio, limited con-
structionand facilitiesmanagement risks
and strong demand
for on-campus accom-
modation.
In making its
case, RBC said: “The
unwrapped project
bond financing struc-
ture that was developed was the first of
its kind tobe implemented inEurope in
over 15 years and gave the consortium
access to particularly long-term financ-
ingprovidedby institutional investors as
analternative to traditional shorter-term
banking solutions.”
For the students of the University
of Hertfordshire – and indeed for the
University’s future - the deal sounds like
good news. It will see the transfer and
refurbishment of 500 rooms, the build-
ing of 2,500 new rooms and the mainte-
nance of all 3,000 rooms over a conces-
sion period of 50 years. This is all highly
significant since theUniversityhadbeen
at full occupancy for the five years prior
to the deal being struck.
Speaking last year, Thierry Deau,
chief executiveof project sponsorMerid-
iamInfrastructure, pointed out that the
deal also provided a neat link between
the generations. “Long term savings of
futurepensioners aremobilised today to
finance a project key to a young student
population that will inreturncontribute
to the UK’s long-term competitiveness,”
he said.
For the judges, thedeal was all these
things – but was fundamentally a semi-
nal contribution to the future of PPP/
PFI financings in a world where bond
finance is seen as the natural replace-
ment for the reducedsupplyof long-term
bank funding.
n
An unwrapped PFI brought back happy memories
of what used to be possible, and showed European
investors cosying up to greenfields
Tearing off the wrapper
BANKING AWARDS FOR EXCELLENCE 2013
UNIVERSITY OF HERTFORDSHIRE STUDENT ACCOMMODATION PFI
Category:
European long-term financing
Winner:
University of Hertfordshire
Student Accommodation PFI
Nominated by:
RBC Capital Markets
(financial adviser to sponsors, sole lead
bond arranger)
Other participants included:
Meridiam
Infrastructure (project sponsor);
Bouygues Development (project
sponsor); Bouygues UK (developer);
University of Hertfordshire (project
sponsor); Legal & General Investment
Management (project sponsor);
Derwent Living (project sponsor/
operations and facilities management)
Date of transaction:
21st May 2013
Size of transaction:
£190m (€230m;
$316m)
“This [University of Hertfordshire] gets
my vote. The term of the financing is
exceptionally interesting.”
“All three leading contenders –
Hertfordshire University, Salford Housing
and Greater Gabbard – are using new
financing techniques. Greater Gabbard
ticks a box for being traditional project
financing using non-traditional financing
sources.”
Honourable mentions in this category:
Salford Pendleton Social Housing
(nominated by FHW Capital)
Greater Gabbard OFTO
(nominated by
AMP Capital, Balfour Beatty and Equitix)
WHAT THE
JUDGES SAID:
