Institutional investor support for Greater Gabbard

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Offshore transmission link encouraged encouraged by first use of Project Bond Credit Enhancement scheme in UK

The Greater Gabbard offshore transmission link has become the first UK based infrastructure project to attract finance from institutional investors using the Project Bond Credit Enhancement initiative. Bonds with a value of GBP 305 million have been issued to finance the new transmission link to connect the 140 turbine wind farm off the Suffolk coast with the UK mainland electricity and have been successfully placed with a broad range of investors. Proceeds from the bond issue have been released, the bonds have started trading on the Irish Stock Exchange and technicalities concluded to allow financial close. The European Investment Bank has provided a GBP 45.8 million guarantee, representing 15% of the bond issued, as a credit support under the Project Bond Credit Enhancement model that allows a one notch upgrade in the project’s rating provided by Moody’s.

The A 3 Moody’s rating of the bonds issued for the Greater Gabbard OFTO includes a rating uplift of one notch from the stand alone credit quality due to the presence of the European Investment Bank’s Project Bond Credit Enhancement (PBCE). Under the PBCE model additional liquidity will be provided for the project if required, allow enhanced recovery for senior lenders by reducing outstanding debt and act as a first- loss piece in the financing structure. The Greater Gabbard OFTO bonds have a maturity of 2032.

“The successful public bond issue for the Greater Gabbard OFTO represents the first use of the joint EIB-European Commission Project Bond Initiative in the UK. This adds a new dimension to infrastructure finance in the UK energy transmission sector by attracting greater participation by institutional investors in an essential part of the offshore wind value chain. This new scheme significantly supports investment in transmission projects essential to connect renewable energy to the national grid. The European Investment Bank is committed to supporting crucial energy investment across Europe and has provided more than £6 billion for long-term investment in the UK energy sector over the last 5 years, including £500 million for the Greater Gabbard offshore wind-farm generating assets agreed in September earlier this year.” said Jonathan Taylor, European Investment Bank Vice-President for the UK.

“Successful completion of the Greater Gabbard OFTO transaction, the second Project Bond Credit Enhancement deal, demonstrates the clear benefits of increasing engagement of institutional investors through a more attractive credit rating. This is the first deal under the project bond initiative where the credit enhancement has been directly backed by the EU budget. Investor confidence is essential for re-engaging capital markets as key sources of finance for Europe’s long-term infrastructure. We look forward to seeing more projects benefit from increased institutional investor support over the coming months,” said Olli Rehn, European Commission Vice-President responsible for Economic and Monetary Affairs and the Euro.

“Unlocking support of institutional investors to provide long-term investment in European energy infrastructure is crucial for stimulating economic growth and creating new jobs. The Greater Gabbard OFTO project has successfully shown how the Project Bond Credit Enhancement product can attract competitive, long-term investment from capital markets to vital energy infrastructure. The project bond credit enhancement scheme will make an important contribution to energy investment in Europe and highlights the role of the EU budget as an engine for growth.” said Guenther Oettinger, European Commissioner for Energy.

The Greater Gabbard OFTO has been the largest in the first round of tenders, conducted by the UK Office of gas and Electricity Markets (OFGEM) since 2009, to transfer offshore wind transmission assets from the wind farm developer to an independent operator. The assets to be acquired from the proceeds of the bond issue include two offshore substation platforms, an onshore substation at Leiston and high-voltage connecting cables. This transfer enables compliance with European unbundling requirements.

The Europe 2020 Project Bond Initiative, a joint programme by the European Commission and the EIB is designed to stimulate capital market financing for infrastructure delivered under ‘project finance’ structures. The pilot phase will benefit from EUR 230 million from the EU budget and will focus on encouraging capital market investment worth more than EUR 4 billion for transport and energy investment. To benefit from credit enhancement during the pilot phase suitable projects will need to reach financial close between now and the end of 2016, provided that the EIB obtains financing approval by its Board before the end of 2014.

To date nine energy and transport projects eligible for Project Bond Credit Enhancement, in six EU countries, have been approved by the EIB Board. These include motorway projects in Belgium, Germany, and the UK, grid connections to offshore wind farms in Germany and the UK, and as well as gas storage facilities in Italy. Under the project bond model bonds are issued by the project companies themselves, and not the EIB or the Member States. The role of the European Investment Bank is to provide credit enhancement through a subordinated instrument, either a loan or contingent facility, to support the senior debt issued by the project company.

The European Investment Bank:

The European Investment Bank (EIB) is the long-term lending institution of the European Union owned by its Member States. It makes long-term finance available for sound investment in order to contribute towards EU policy goals.

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