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Capital Markets

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

Mind the gap: funding problems are threatening Tube Lines’ improvement of the Underground

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.

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