The Europe 2020 Project Bond Initiative - Innovative infrastructure financing
The Project Bond initiative is a joint initiative by the European Commission and the EIB.
Its objective is to stimulate capital market financing for large-scale infrastructure projects in the sectors of transport (TEN-T), energy (TEN-E) and information and communication technology (ICT). According to the Commission, the European Union’s infrastructure investment needs to meet the Europe 2020 objectives in these sectors could reach as much as EUR 2 trillion.
The Project Bond initiative is designed to enable eligible infrastructure projects promoters, usually public private partnerships (PPP), to attract additional private finance from institutional investors such as insurance companies and pension funds.
Improving credit quality
This will be achieved by providing credit enhancement to those promoters, whose debt will effectively be divided into two tranches: senior and subordinated.
The subordinated debt, or Project Bond Credit Enhancement (PBCE) can take the form of a loan from the Bank, with the support of the European Commission and is given to the promoter at the outset. It may also take the form of a contingent credit line which can be drawn upon if the revenues generated by the project are not sufficient to ensure senior debt service.
The PBCE underlies the senior debt and therefore improves its credit quality, offering peace of mind to institutional investors.
The bonds themselves will be issued by the promoters not by the Bank or the Member State in question. The support will be available during the lifetime of the project, including the construction phase.