Q

Would it have been feasible to raise bank finance to fund the Link either with or without a Government guarantee?

A

It would certainly have been feasible to raise bank finance with a Government guarantee. We do not believe that sufficient amounts could have been raised without a Government guarantee.

Q

Would there have been sufficient appetite and capacity in the banking market to provide the funding package?

A

There would have been sufficient appetite and capacity to raise up to £2,000 million with a Government guarantee. We do not believe there would have been sufficient appetite and capacity to raise large sums without a Government guarantee or some tangible government support unless LCR paid a substantial (in excess of 1%) margin. Even with a substantial margin, we do not believe it would have been possible to raise all the financing required from the loan market and estimate that £1,000 million in addition to the £350 million Railtrack guaranteed facility would have been the maximum amount available.

Q

What length of financing terms would have been available?

A

A Government guaranteed facility or one with some tangible government support would have been able to obtain a maturity of 12 years and there may have been a requirement for some amortisation in the later years. A facility without a government guarantee would have been limited to 7 years, as in fact was the case for LCR's £350 million facility guaranteed by Railtrack signed in December 1998.

Q

What additional flexibility in the draw-down profile would have been possible?

A

The loan market has a distinct advantage over others in that facilities with a fully revolving draw-down period throughout their life are available. For a project financing, it is possible to structure term loan facilities with extended draw-down periods and the ability to draw in flexible amounts. There would have been greater flexibility in the draw-down schedule in a loan facility than in the bond financings.

Q

What total savings would bank finance have realised for the borrower, LCR, over bond finance?

A

We do not believe that bank finance would have achieved any savings for the borrower over bond finance since loan finance would have been at a margin over LIBOR and the bond issues achieved sub-LIBOR funding. If the loan route had been chosen, in addition to the high interest cost on drawn amounts, LCR would have had to pay a commitment fee on the undrawn (but committed) amounts, thus adding to the overall cost. Although the total bond proceeds were not required at financial close, the excess was put on deposit at a higher rate than the swapped interest cost, creating positive cashflow for LCR.

Q

What would have been the advantages or disadvantages of using bank finance as opposed to, or in conjunction with, bond finance?

A

It can be argued that the £700 million Railtrack guaranteed debt together with the Government-guaranteed bonds does form a dual market financing package. The real question is whether it would have been possible to arrange bank finance in excess of the Railtrack guaranteed debt. There could, for example, have been an initial issue of bonds to refinance existing debt and provide a cash pool for part of the future expenditure. A parallel loan could have been raised at the same time to fund a further part of capital expenditure and the balance of the funding required left until a date in the future. This strategy would have exposed LCR to changes in market conditions which may have affected pricing and maturity available and would also have exposed it to a decline in its own credit quality which may have led to no, or only very expensive finance, being available. Conversely, the opposite could have been the case. On balance, given the history of the Channel Tunnel, Eurostar UK, the high speed rail link, and the more attractive funding available in the bond market in both terms of cost and maturity, arranging almost all the financing required in the bond market resulted in better value and was therefore the more appropriate approach.