4.7 London Underground undertook detailed technical and performance reviews of the bids to satisfy itself the proposals were deliverable and that higher performance was likely to be achieved at a lower cost. The performance payments included in their analysis were only expected levels and because bidders are not contractually bound to these levels, performance and subsequent payment levels could vary although London Underground believes bidders are incentivised to structure their performance proposals accurately. Over the first year of PPP operations performance, including the level of service charge payment reductions, has generally been in line with the base case projections provided to lenders.
4.8 Although the BCV and SSL performance data, in both cases, were updated as at Metronet's financial close, the JNP performance baselines were left as originally bid and were not updated as new data emerged from shadow running. Expected improvements in Northern Line (new trains in 1999) and Jubilee Line performance were allowed for during the competitive bidding.13 In isolation these expectations on performance would not be significant but should they prove over-optimistic, we estimate that - if coinciding with a major delay to an upgrade - key loan covenants could be breached. This means that corrective action would be required and lenders could block the drawdown of bank loans that have been agreed subject to certain ongoing conditions being met. This block would continue until such time as Infraco JNP and LUL could agree on new financial arrangements. Our technical analysis illustrates that the Debt Service Cover Ratio14 (DSCR) for total debt (incorporating senior debt plus mezzanine) could fall below the minimum level of 1.10 required by the loan covenants (see Figure 15). This shortfall is projected in both years seven (DSCR 0.79), and eight (DSCR 0.92), and would be a result of reduced payments to compensate for delay, and Infraco JNP not receiving payments for the expected improvements, both coinciding with poor daily performance.
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13 "The Northern line consolidated its position at the top of the performance league by operating over 98% of timetabled services in the year [to 31 March 2002], while the Jubilee line has recently been achieving its best performance since the extension opened in 1999." London Underground Chairman's statement 16 July 2002.
14 In the combined low performance scenario, cash available for debt service falls below the amount required (a DSCR of 1.0) and loan covenants require a 10% cushion.