2.23 One of the key benefits of the PPP contracts was expected to be scrutiny by the lenders. Metronet's lenders did not, however, protect their investment as anticipated. They did not have sufficiently strong incentive to do so because only five per cent of their investment was at risk. The remaining 95 per cent of the debt obligations was guaranteed by TfL. As a result, only £31 million out of the £627 million bank loans made to Metronet up to July 2007 was at risk. The £1,086 million of bonds were also 95 per cent guaranteed and bondholders had full insurance protection. Furthermore, profits on bank fees and other earnings would have offset the loss banks incurred. Banks made a margin of £11 million through interest charged and would have earned profits from the £19.4 million charged for loan set-up fees (Figure 9).
8 | Gross margins on sales required by shareholders to break even on work done to March 2007 and | |
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| % |
Balfour Beatty | 15 | |
Elecricite de France | 55 | |
RWE AG (Thames Water) | 82 | |
WS Atkins | 33 | |
Bombardier | 27 | |
Source: National Audit Office analysis. See Appendix 3 for further details. | ||
9 | Income to bank lenders from Metronet debt | |||
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Facility and Principal1 | Fees2 | Margin | 5 per cent | |
Bank facilities £627 million | £19.4 million | £11 million | -£31.3 million | |
Source: National Audit Office analysis | ||||
NOTES 1 Principal figures from the PPP Administrator put option calculations. 2 Fees are estimates made on the basis of information available and include arranging fee and commitment fee. Fees will have included provision for costs banks incurred. 3. Estimated margin made on debt is over LIBOR, the rate banks would have received from lending to other major banks. It is a proportion of the interest received on debt drawdown up to March 2007. Debt drawdown schedules are taken from Metronet BCV Finance and Metronet SSL Finance financial statements 2004-2007. | ||||
2.24 The lenders did not monitor Metronet's performance s DfT expected:
i They monitored the rate of spending, but did not compare it closely to delivery and were therefore slow to identify the extent of cost overruns.
ii They permitted Metronet to waive the 2005 Arbiter's nnual Report. It is likely that the report would have publicly highlighted issues with Metronet's performance (see paragraph 2.15).
Lenders did, however, reduce termination costs because after allowing Metronet some time to cure shortcomings, they halted access to loans with approximately £1 billion remaining to be drawn.