There was no substantial increase in taxpayer support following Railtrack Group's withdrawal
2.5 Under the 1998 restructuring, the Department agreed to direct taxpayer support of £3,750 million of project debt raised by LCR through the issue of Government Guaranteed Bonds (GGBs). With the exception of the direct Government grants, the remaining funds to construct the Link were expected to be raised on the back of Railtrack Group's purchases of Sections 1 and 2.
2.6 Also in 1998, the Government guaranteed Eurostar UK's payments of access charges to Railtrack (UK) Limited, a subsidiary of Railtrack Group into which the group vested its interests in the Link. LCR acquired CTRL (UK) Limited (formerly Railtrack (UK) Limited) in 2002, together with the benefit of the guarantee. LCR used the guarantee to help demonstrate to the capital markets the quality of the income stream.
4 | Between 1998 and the end of 2003, LCR raised nearly £6,250 million of debt in the capital markets to fund: construction of Sections 1 and 2 of the Link; operation and maintenance of Section 1; and Eurostar UK's concurrent losses |
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Source: National Audit Office | |
NOTES 1 EIB is the European Investment Bank. KfW is Kreditanstalt für Wiederaufbau, a German development bank. 2 The last repayment instalment of the £350 million October 1998 commercial facility is due in the quarter ending December 2005. 3 LCR has repaid £50 million of the October 1998 KfW loan facility. The remaining £100 million of the October 1998 KfW loan facility and the £200 million, October 1998 EIB loan facility were rolled over in 2003 and secured against Eurostar UK’s payment of the Section 1 track access charges and the Department’s payment of the Section 1 Domestic Capacity Charge. | |
5 | On 31 December 2004, LCR had £6,200 million of long and medium term debt | |||||||||||
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Types of debt issued by LCR | Outstanding debt as of | |||||||||||
3,750 |
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Bonds and bank debt secured against Section 1 Track Access Charges and the Section 1 Domestic Capacity Charge | 1,248 | (bonds) | ||||||||||
Bank debt secured against payments of the Deferred Grant | 350 | (1998 commercial bank loan) | ||||||||||
| 400 | (May 2003 EIB bank loan) | ||||||||||
| 150 | (May 2003 KfW bank loan) | ||||||||||
Source: LCR |
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2.7 Following Railtrack Group's withdrawal from the project, taxpayer support of the project's financing increased slightly as a result of de-risking grant payments:
■ £900 million of current medium-term bank facilities are secured against seven of the eight instalments of the Deferred Grant (Figure 3). While payment of these instalments has been decoupled from the attainment of construction milestones, the Department and LCR were confident, at the times when the decouplings occurred, that the milestones would be met. As of March 2005, construction of the Section 2 works had progressed beyond the first five milestones. In all five cases, construction progress was, or is, well ahead of the payment dates for the relevant grant instalments. LCR expects, also, to achieve the sixth and seventh milestones by the end of 2005 or early 2006, well in advance of the payment dates; and
■ the £1,550 million of long-term financing raised in November 2003 was secured on Eurostar UK's payments of track access charges for Section 1 and just under half of the Section 1 Domestic Capacity Charge payments (Figure 3), which were decoupled from track availability. The risk of paying instalments of the Section 1 Domestic Capacity Charge when the section is unavailable has receded because, since its opening, the operational performance of the section has been excellent. The Department and LCR are confident that availability levels for Section 1 will continue to meet or exceed targets.