1.17 The bidders were provided with clear information on the nature of the project, how the competition would be run and on the criteria against which bids were to be judged. Although it was Exchequer Partnership's competition, run by Société Générale, all key decisions were taken in close consultation with the Treasury and Dresdner Kleinwort Benson.
1.18 The bidders were aware of exactly what they were competing for. Exchequer Partnership would provide a minimum of 3% and a maximum of 7% of the total funding requirement in the form of equity. The 3%-7% band was negotiated between the Treasury and Exchequer Partnership to ensure that funding was not constrained by a fixed level of equity investment7 whilst ensuring a minimum level of sponsors capital would be at risk. Therefore up to 97% of the total financing was open to competitive bidding, and the potential funders would determine exactly how much equity the shareholders of Exchequer Partnership put into the project company. The bidders were made aware of the fact that Société Générale was prepared to provide 5% of the financing in the form of mezzanine debt, but that this element of the financing would also be open to competition.
3 |
| Competition timetable from signing of the project agreement to financial close |
Date | Event |
4th August 1999 | Invitation to pre-qualify (ITPQ) sent to initial longlist of 28 institutions |
5th August 1999 | Project agreement signed between the Treasury and Exchequer Partnership. Only outstanding issues related to planning consent and funding |
27th August 1999 | Invitation to pre-qualify responses analysed and long list of 6 funders selected to go forwa in the competition |
15th October 1999 | Information memorandum provided for the remaining bidders |
12th November 1999 | Supplementary technical review issued covering latent defects and Jubilee Line extension issues |
10th December 1999 | Closing date to receive bids |
16th December 1999 | Planning consent received |
5th January 2000 | All bids analysed. Warburg Dillon Read recommended as bond lead arranger. Sóciété Générale recommend that the monoline insurers are given a further chance to refine their bids |
6th January 2000 | Warburg Dillon Read appointed |
7th January 2000 | Revised bids received from monoline insurers |
17th January 2000 | Monolines confirm acceptance of project documents |
20th January 2000 | Listed building consent received (beginning of 90 day judicial review process) |
26th January 2000 | Ambac selected as monoline insurance provider |
20th April 2000 | Earliest date for bond launch |
26th April 2000 | Bond priced at 163 basis points over the reference gilt |
28th April 2000 | Bond issue launched |
5th May 2000 | Financial close |
Source: National Audit Office |
1.19 The evaluation criteria reflected the objectives set by the Treasury. Bidders were to be evaluated on three criteria: price, the acceptance of the standard terms and conditions and deliverability. As well as information on what they were bidding to provide, the funders were also given a detailed competition timetable (Figure 3). All parties stuck to this timetable.
1.20 Potential bidders wishing to pre-qualify were provided with outline details of the project and an estimate of the amount of funding required. The bidders were asked to indicate the terms on which they were prepared to finance the project but were not required to go so far as to obtain approval from their own internal credit committees at this stage.
1.21 From the responses to the invitation to pre-qualify, Société Générale, in consultation with Dresdner Kleinwort Benson and the Treasury, produced a long list of potential funders. The long-listed bidders represented the best responses to the invitation to pre-qualify when evaluated on price (i.e. impact on unitary payment) and their ability to provide the required amount of funding. The long-listed bidders were provided with a more detailed Funding Competition Memorandum and a due diligence report produced by the technical, legal and insurance advisers, appointed by Exchequer Partnership, to act on behalf of the bidders.
1.22 In addition to the Funding Competition Memorandum and the due diligence report, the long-listed bidders were invited to visit the Treasury building for a presentation given jointly by Exchequer Partnership and the Treasury. Bidders were also given opportunities to meet Exchequer Partnership, the Treasury and the due diligence advisers.
1.23 Finally, Société Générale requested the credit reference agency, Standard & Poor's, to provide the bidders with an indicative project credit rating. Standard & Poor's assess the credit worthiness of countries, corporate bodies, financial instruments and projects, allowing investors to make an informed decision on the risks involved in any financial investment. Standard & Poor's rated the project as "low investment grade". Such a rating was satisfactory because any class of investment grade rating indicates that the probability of financial obligations being met is high and that the project is not considered speculative.
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7 To ensure the Treasury's annual payments were as low as possible, Exchequer Partnership agreed to optimise the financial model based on the outcome of the funding competition. The aim of this exercise was to produce the lowest possible annual payment while maintaining the minimum financial ratios and equity returns required by the financiers. As the level of the financial ratios was an element of the funding competition, Treasury and its advisers negotiated a band of minimum and maximum equity contributions. This enabled Société Générale to flex the amount of equity in seeking the optimal financial solution.