Council approves project bonds
By Eric van Puyvelde | Tuesday 10 July 2012
Following on from the European Parliament, on 5 July (see
Europolitics4459), the Council of Ministers formally adopted, on 10 July, the regulation launching the pilot phase 2012-2013 of EU project bonds, aimed at raising €4.5 billion in private sector financing for key strategic infrastructure projects. Parliament and the Council reached an agreement, on 22 May, after the Council accepted all the amendments passed by Parliament at first reading.
Project bonds are private debt issued by the sponsor(s) of a project, either a private company or a special purpose vehicle (SPV) created by one or more companies to finance a specific project. When raising financing through a project bond, the company or SPV will issue senior and subordinated tranches of debt. By creating a subordinated tranche, which takes first losses, the credit standing of the senior debt is enhanced because it carries less risk. The European Investment Bank will take up the subordinated debt, whereby funds from the EU budget will be used to cover part of the EIB’s risk.
The initiative will be financed wholly from redeployment under the 2012 and 2013 budgets of existing programmes. The regulation makes provision for allocating up to €200 million in 2012-2013 to transport projects, up to €10 million to energy projects and up to €20 million to information and communication technology (ICT) and broadband projects.
If the results prove satisfactory, the pilot phase will be followed by an operational phase in 2014-2020 under the Connecting Europe Facility.