Loan guarantees / Refinancing guarantees - In early 2009 the French authorities established an SG scheme for priority PPP8 projects as a response to the financial crisis. This was prompted by the high number of very large PPPs9 in the pipeline, which risked not proceeding without government support.
The French government authorised a EUR 10 billion guarantee facility to be utilised on projects approved by an inter-ministerial committee and which were scheduled to reach financial close prior to the end of 201010. The scheme is managed by MAPPP, the French PPP unit.
The main modalities of the SG scheme are as follows:
- The State provides an unconditional, on-demand guarantee granted to senior lenders in case of a debt service payment default occurring as a result of cash flow shortfalls or early termination of the PPP contract;
- The guarantee covers a portion of the senior debt put in place for the project. The precise amount is decided on a case by case basis but does not exceed 80% of the debt;
- The guaranteed amounts cover the principal outstanding, unpaid interests and associated costs;
- If a guarantee is called, a 6-month standstill period has to be observed after which the State becomes a lender to the project and shares with the other lenders on a pari passu basis the rights on cash flows and security;
- The guarantee is priced on a commercial basis in order to incentivise an early refinancing when the lending market recovers and to comply with EU State aid regulations. In practice, the guarantee fee varies between 75 and 150 bps based on the perceived riskiness of the specific project. In the event of a call under the guarantee, the pricing due to the State is increased such as to incentivise a refinancing.
An interesting feature of this SG scheme is that it can also be made available to cover the refinancing risk involved with the so-called "hard mini-perms"11 lending facilities. In substance, the guarantee would be called should the refinancing not prove possible upon expiry of the mini-perm's legal maturity.
To date, four projects worth over EUR 13 billion have been authorised for a total guaranteed amount of EUR 3.3 billion (i.e. "Tram-Train", "Charles de Gaulle Express", "LGV SEA" and "LGV BPL"). Another two are currently under assessment (i.e. the "Balard Ministry of Defence building" and "Ecotaxe" (the lorry road pricing project)). However, no guarantee has been formalised to date12.
Guaranteed minimum service charges - A regular feature of PPPs in France is the use of the "cession de créances". More detail is provided in Box 3 of the main document.
Termination payments - Most PPP contracts in France provide for floors (often around 85%) and caps (often around 95%) on the share of the debt outstanding which will be covered by the amounts due by the public authority following a PPP company default termination.
Debt Instrument - Aside from the SG scheme mentioned above, the French government has adopted another crisis mitigation measure through the setting aside of a EUR 8 billion loan facility funded by saving accounts ("fonds d'épargne") managed by the Caisse des Dépôts. The facility is aimed at large infrastructure projects and renewable energy investments, including those implemented through PPPs. The loans are granted on advantageous terms (e.g. pricing, maturities) but require a public guarantee of some shape or form. PPP project companies may seek "fonds d'épargne" loans for up to 25% of the senior debt raised.
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8 Whether through "contrats de partenariat" or concessions.
9 Examples are the EUR 7 billion Tours-Bordeaux high speed line ("LGV SEA"), the EUR 7-8 billion Canal Seine- Nord inland waterways, the EUR 2 billion Tram-Train in La Réunion, the EUR 1 billion Charles de Gaulle Express airport link, the EUR 3.5 billion Bretagne Pays de la Loire high speed line ("LGV BPL") and the EUR 1 billion new Ministry of Defence building in Balard.
10 This deadline was subsequently extended for the projects already approved but which had not reached financial close.
11 A "hard mini perm" is a project finance structure where the legal maturity of the loan is set at a shorter term than the project cash flows permit (typically around 7 years), forcing the borrower to refinance the loan before maturity or face default.
12 The Tram-Train project reached commercial close but was cancelled in early 2010.