asset-based financing for transport projects chris cook partnerships consulting llp
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Asset-Based Financing for Transport Projects
Chris CookPartnerships Consulting LLP
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
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)
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
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
Asset-Based Finance - LLPs
• Q. When is a partnership not a partnership?
• A. When it’s a UK Limited Liability Partnership (“LLP”)
• Q. What is it if it’s not a partnership?
• A. A corporate body: with limited liability: and………er, that’s it!
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.
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 “Money’s Worth”) for as long as Capital is used
• Rental paid before due date is Investment• Outcome “Co-ownership”
Hilton Deal 2002
Capital Partnership LLP10 UK Hotels
Revenues27yr term
Hilton Group“Capital User”
Consortium LLP “Capital Provider”
£350m
Bank PropertyDeveloper
HotelSpecialist
% of Revenues% of Revenues
%%%
Community Transport Partnership
LLP
Investors
Users
Capital Rental
Operators
% %
TrusteeOwnership
Community Transport Partnership
• “Trustee” Member
• “Investor” Member
• “Developer/Operator” Member
• “Occupier” Member
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%
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
Investment Proposition
• Reasonable long-term return
• Secure –based upon “ Co-ownership” of asset
• Potential for growth with limited downside
• Islamically sound
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