PEBBLE makes a splash

Category: European social infrastructure

Winner: Zaanstad Penitentiary Centre

Nominated by: ING (underwriter, book-runner, arranger, swap provider, account bank, structurer)

Other participants included:
NIBC (joint book-runner); Pi2 consortium, wholly owned by Ballast Nedam (project sponsor); Royal Imtech (project sponsor)

Date of transaction: 29th September 2013

Size of deal: €195m

ING’s PEBBLE, a so-called “open source funding format” for greenfield project finance, was one of the initiatives launched in the wake of the financial crisis to breathe life back into the market by allowing institutional investors to provide long-term financing while not moving too far from their comfort zones.

That, at least, was the theory. Then, in September last year, came the practice. The PEBBLE structure was fully deployed for the first time on the Zaanstad Penitentiary transaction, involving the design, build, financing, maintenance and operation of a new penitentiary for over 1,000 detainees in Westzaan, North Holland.

In broad terms, PEBBLE seeks to bring banks and institutional investors together as co-investors for the funding of greenfield projects. The idea is that pairing long-dated institutions with credit-enhancing bank debt will allow them to take direct greenfield project risk from the point of financial close.

Specifically, PEBBLE – which was honed by ING together with law firm Allen & Overy – seeks to bring together banks providing a subordinated first-loss tranche to cover the early phases of the project lifespan with institutions providing longer-term liquidity.

In the case of Zaanstad, ING and NIBC provided 15 percent of the debt as a seven-year first-loss protection subordinated loan to guarantee the other tranche. The subordinated loan is paid back first if the asset is performing, while it is used to absorb losses if the asset underperforms or defaults. After the end of construction, cash flows are directed to pay back the subordinated loan.

The long-term fixed-rate debt accounts for the remaining 85 percent of the total debt and was provided by institutional investors.

ING hailed the deal as the “first true syndicated [greenfield] PPP transaction with long-term project finance underwritten since the financial crisis”. It was also a speedy process, having been undertaken in a two-month placement window.

In making its submission, ING noted that 100 percent of the long-term funding was ultimately provided by the institutional investor market with 28-year unrated funding subscribed to by both pension and insurance fund sources.

Crucially, as far as the judging panel was concerned, this was a genuinely new financing technique being deployed for the first time and thereby helping to open up the market to a broader range of financing possibilities.

For ING, the most important thing was proof of concept since other potential solutions have faded from view as both public and private sectors alike dashed to try and fill the project finance funding gap in the wake of the financial crisis.

It making its submission, ING pointed out that the Zaanstad deal provided “an important benchmark for future transactions” and that investor appetite for long-term infrastructure assets through the PEBBLE structure was now confirmed.

What the judges said:

“Social infrastructure should always have a social benefit, so the key criterion here is bringing liquidity to the market.”

“This deal shows really positive thinking about how to make a variety of financing structures available to sponsors.”

“This gets my vote as there is more to commend the project than just the financing but it is also the most innovative compared to the others with regard to the financing.”

Honourable mentions in this category:

Royal Liverpool University Hospital (nominated by Lloyds Banking Group)
West London Waste (nominated by RBC Capital Markets)
Hertfordshire University Student Accommodation (nominated by RBC Capital Markets)