AssetBased Financing for Transport Projects

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• Asset-Based Financing for Transport Projects
• Chris Cook
• Partnerships Consulting LLP

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What is Asset-Based Finance?

• Ownership of assets and their revenue streams
• Legal wrapper around assets and revenues
• Limited Liability Company
• Trust
• Open Corporate Limited Liability Partnership

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What is Deficit-based Finance?

• Interest-bearing (from Credit Institutions)
• Asset-backed/ Secured by a claim on assets
  (mortgage or charge)
• unsecured
• Non interest-bearing (from suppliers or staff)

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Asset-Based Finance Companies

• Types
• Limited by Guarantee
• Limited by Shares
• Private
• Public
• GM eg IPS, CIC
• Issues
• Conflicts shareholder value and CSR
• Management the Principal/Agency problem

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Asset-Based Finance Trusts

• Examples
• Canadian Income/ Royalty Trusts
• Macquarie Bank business model
• Common Law judge made
• Issues
• Risk Aversion
• Management
• Taxation
• Legal complexity and cost

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Asset-Based Finance - LLPs

• Q. When is a partnership not a partnership?
• A. When its a UK Limited Liability Partnership
  (LLP)
• Q. What is it if its not a partnership?
• A. A corporate body with limited liability
  ander, thats it!

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Why an Open Corporate?

• Open to any stakeholder to be a Member, as long
  as they subscribe to the Member Agreement.
• A legal wrapper like a trust, but without
  the drawbacks - for any assets or revenues
  anywhere in the world.
• Tax transparent.

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Introducing the Capital Partnership

• Capital User Member
• Capital Provider Investor Member
• Jointly acquire a productive asset
• Capital Rental - user pays Investor a revenue
  share in Money (or Moneys Worth) for as long
  as Capital is used
• Rental paid before due date is Investment
• Outcome Co-ownership

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Hilton Deal 2002
Revenues 27yr term
Capital Partnership LLP 10 UK Hotels
of Revenues
of Revenues
Hilton Group Capital User
Consortium LLP Capital Provider 350m



Bank
Property Developer
Hotel Specialist
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Community Transport Partnership
Users
Capital Rental
LLP
Trustee
Ownership


Investors
Operators
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Community Transport Partnership

• Trustee Member
• Investor Member
• Developer/Operator Member
• Occupier Member

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Example 1 Eurotunnel

• Divide 8 bn Capital (debt and equity) into
  billionths/ shares at 8.00 each
• Allocate (say) 25 of Eurotunnel revenues to
  Capital Rental
• Initial Capital Rental 150m 1.875
• Each billionth then carries one quarter billionth
  of Eurotunnel revenues, initially 1.875

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Example 2 Merseytram

• Current Plan increase Mersey Tunnel
  deficit-based finance by 40m
• Alternative Plan refinance Mersey Tunnel with
  120m asset-based finance
• 10 million shares at 12.00
• initial Capital Rental of 3 3.6m or approx
  10 of revenues
• each share carries one 100 millionth of tunnel
  revenues
• Financing costs reduced overall despite increase
  in Capital

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Investment Proposition

• Reasonable long-term return
• Secure based upon Co-ownership of asset
• Potential for growth with limited downside
• Islamically sound

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Outcomes

• Co-ownership between financier and financed
• New long term savings/pension asset class
• Local investment in local infrastructure?
• Lower cost of capital than deficit-based finance