The European Investment Bank’s credit enhancement for project finance : analysis of the A-2 toll motorway (Poland)‎

Abstract EN

Budgetary limitations of EU Member States make public funding in the form of guarantees or subventions less available than in the pre-crisis period.

The Europe 2020 Project Bond Initiative contemplates the credit enhancement of senior secured project bonds to achieve a robust level of credit quality – potentially in the single-A rating range – that would be attractive to institutional investors.

Credit enhancement may take the form of either funded subordinated debt, or an unfunded partial guarantee of senior debt service.

If implemented appropriately, PBCE would be capable of credit-enhancing senior secured project bonds issued by the Public – Private Partnership (PPP) projects from low investment-grade to single-A ratings.

The paper presents Polish A-2 toll motorway study which shows that (1) the PPP transportation projects cannot rely exclusively on private financing.

(2) The support of the A-2 project was in the form of mezzanine tranches coming both from EIB (government guaranteed senor debt - subordinated EIB with a lot of facilitations to concessionaire) and project sponsors (shareholder junior debt and shareholder contingent funding) was requisite for the A-2 project success.

(3) Last but not least, Polish government guarantees mentioned in (2) should be deemed as a credit enhancement as well.