A7 Extension: First Financing Operation in Germany with Euproject Bonds

PRESS RELEASE

BEI/14/182

Luxembourg, 27 August 2014

A7 extension: first financing operation in Germany with EUproject bonds

The European Investment Bank (EIB) is providingsome EUR170 millionfor a central stretch of the A7 motorway, which is being financed by means of a project bond.Firstly, theEIB is providingasubordinated financingtranche(Project BondCreditEnhancement, "PBCE") under its Project Bond Initiative, whichhas considerably improvedthe risk profileforcapitalmarketinvestorsin the project. Together with institutionalinvestors theEIB also investsinbonds issued by contractors.

This isthe first projectto be implemented under the European Project Bond InitiativeinGermany.

EIB Vice-President Wilhelm Molterer stated that the conclusion of the financing agreement sent an important signal to private investors in particular: “To make Europe’sinfrastructure competitive, investments of a scale that cannot be effected by the public sector alone, are required.The repeated successful implementation of the principle of PPPs in motorway construction (A-model) in Germany guarantees the competitive integration of the construction industry and financing banks. By optimising the financing cost, the EIB has always played an important role in PPP projects. However, the A7 is unique in this respect insofar as theproject company canfinance itself directlyon the capital markets with the supportof the EUProject Bond Initiative, which benefits centralised infrastructureprojectsby improvingthe rating of theproject companies.Institutionalinvestors looking forlong-term,reliableandattractiveinvestment opportunitiesalso benefit.”

This financing operation concerns the main road link between Denmark and Germany.As part of thetrans-European road network(TEN-T) the A7 isa key component of Europe’s transport network. This is one of the pilot projects forcredit enhancementunder the EU’s 2020Project BondInitiative.This commoninstrumentof theEIBandthe European Commission aimed at facilitatingcapitalmarket financing via project bondscan only be used in support ofTEN-T, TEN-E(energy) orICTbroadbandprojects.

Theproject will be implementedas a public-private partnership(PPP) in the German transport sector. Forthe actual construction element a special purpose vehicle iscreated.It actsas general contractorandbenefitsfrom the credit enhancementinstrument. The public partner is DEGES (Deutsche Einheit Fernstraßenplanungs- und -bau GmbH), which is the project promoter representing the Federal Republic of Germany via the Federal States of Hamburg and Schleswig-Holstein. DEGES is also responsible for procurement. The contractor is aconsortium led by the construction company HOCHTIEF.

The EIB is providing a subordinated loan of around EUR90million for the project, representingabout 20% of the volumeof the senior debt through the issuance of capitalmarketinstruments. The EIBandtheEuropean Commissionsharetheriskand benefitsof the instrumenton a portfolio basis.The European InvestmentBankisalsoone of the keyinvestorsintheproject bond, on the same levelasother capitalinvestors.

The project company is paid on the basis of the infrastructure’s availability (“availability model”). The fee therefore depends chiefly on theextent and quality of the road sectionmade available for use bymotorists. Compliance with the contractual requirements ensures that the contractorreceives the full availability payment as agreed; in the event of non-compliance, a deduction is made.

The proposed extension concerns an approx. 65 km long sectionbetween the Bordesholm junction in Schleswig-Holstein and the HamburgNordwest junction. This section will be widened from four to six lanes and over a 500 m long stretch to eight lanes. During the construction phase, scheduled for completion by 2018 at the latest, traffic will be maintained. Capacity expansion in this important European corridor (TEN-TCorridor 5, Scandinavia- Mediterranean) will ease what has hitherto been a traffic bottleneck. By speeding up traffic flow and improving safety along this key economic artery, this project will make a significant positive contribution to the economy. The swift implementation of the project as a PPP will make a decisive contribution to its positive impact.

Background information:

The European Investment Bankis the long-term lending institution of the European Union and its shareholders are the EU Member States. Its remit is to make long-term finance available for viable projects in order to contribute towards EU policy objectives.

Press contact:

Richard Willis, , Tel.: +352 4379 82155, +352 621 555 758
Rainer Schlitt, , tel.: +352 4379 83328, +352 621 362 509

Website: - Press Office: +352 4379 21000 –