Infrastructure: Depfa’s woes put Tube improvements on the line

The funding gaps at Depfa that forced the bail-out of parent bank Hypo Real Estate (HRE) are threatening to derail the modernization of London’s underground train system. Tube Lines’ improvement of the Jubilee, Northern and Piccadilly lines is reliant on funding from the Dublin-based bank for its roughly £2 billion ($3.1 billion) refinancing deal. Now that Depfa’s business model has proved unworkable in this environment, with the short-term markets no longer an option for funding the bank’s long-term assets, the Tube Lines project could be in danger. "Depfa’s credit line has dried up," says an analyst. "The bank has a funding commitment to Tube Lines, but the question now is whether or not it’s good for that commitment." The structure of the Tube Lines refinancing deal is not a common one. Apart from the issuer facilities, it comprises £1.15 billion in class A-1 notes, £95.26 million in class A-2C notes, £300 million in loans from the European Investment Bank and nearly £250 million in class B, C and D notes. Depfa’s involvement is across that spectrum, with the exception of the EIB loans. The bank is the issuer facilities provider and the purchaser of all the class B, C and D notes. The A-1 notes were all bought by Goldman Sachs, which then sold a portion of the notes back to Tube Lines and committed itself to buy them back in the future under a forward note purchase agreement (FNP). Goldman buys back the notes in instalments in accordance with an agreed schedule. There is then a similar FNP agreement in place between Goldman and Depfa, with the US bank selling the notes on to Depfa under their own agreed schedule. "Financing with an FNP over two banks is unusual," says Nicolas Painvin, senior director in Fitch Ratings’ Global Infrastructure and Project Finance Group. "We’ve never seen this before in the Fitch project finance portfolio, at least not on the transport side."