by Agnes a Paris
Mon Jan 23rd, 2006 at 06:25:01 AM EST
The much heralded Tube lines project, focused on revamping the JNP lines of the London Underground, hit a major landmark on the bond market. The transaction refinanced about £2 billion of loan facilities with the aim of:
-Achieving refinancing benefits through a repackaging of debt;
-"Tranching" the debt to provide different exposures to credit risk; and
-Gaining the benefit of lower interest rates.
The Borrower, Tube Lines Holdings, is responsible for the infrastructure management and upgrade of the Jubilee, Northern, and Piccadilly London Underground lines under a 30-year PPP. They manage, renew, and maintain the infrastructure, including stations and rolling-stock assets, on these lines.
This strikes me as the illustration of the gap between common sense perception of this project, that of average public facility users like you and me and the appetite of financiers to fund it. Indeed, for a project to reach a successful refinancing, it has to be well-perceived by investors, in risk-reward terms.
This diary aims at giving a specific illustration of the PPP scheme being implemented, on a project that most of us know of, having at least once travelled on the London tube, when not having been stuck between 2 stations on a regular basis.
At the end of last year, the following trends in the revamping process had been identified :
Continued positive performance on the Piccadilly Line;
Weakening performance on the Jubilee Line
, although still ahead of the original schedule. Part of the recent deterioration on this line has been attributable to poor performance by the track contractor, Amec. Tube Lines has, therefore, terminated this contract and brought the staff in house ;
Some recovery in performance on the Northern Line after previously disappointing levels, as a result of poor rolling-stock and signals performance. Well this is groundbreaking news to all London commuters !
Northern Line rolling stock is provided by ALSTOM under a private-finance initiative (PFI) contract established before the PPP.
The Jubilee and Northern line upgrade projects are scheduled to be completed by March 2009 and March 2011. TL has made good progress in its station modernization and enhancement program and has completed the first 10 stations, which were required to be finished in 2005. Work is under way on 19 other stations
Over the Christmas period in December 2005, TLL has successfully implemented the "seventh car" program to enhance the rolling stock on the Jubilee Line, thereby increasing the overall capacity of the line. The program was to enhance passenger capacity by nearly 20% through adding a seventh carriage to each of the existing 59 train sets and procuring four new seven-car train sets.
As to the problems previously encountered by London Underground, it would take hours to list all the culprits, so I'll stick to one, kinda funny in some way : over-reliance on temporary agency staff.
Indeed, under the PPP contract, it was expected that the longer-term view adopted by Tube Lines would lead to reduced numbers of temporary staff and an overall rationalisation of staffing.
Tubes Lines has, however, undertaken various additional works outside the scope of the PPP contract such as the redevelopment of Wembley Park Station to serve the new stadium and works at Terminal 5 at Heathrow.
TL has retained temporary agency staff to undertake these works.
Although these other works have proved profitable for TL to date, management attention was "diverted" from its core responsibilities. In other words, the company is accused of indulging into marketing specific categories of customers by allowing them to reach Wembley or Heathrow, at the expense of regular tube users...
