Transport for London's debut bond issue will put a financial base in place to improve a system that has been allowed to run down for decades, a senior Tfl official said recently. Jay Walder, managing director for finance and planning at TfL, said the bonds would be a "key tool" for the authority which is responsible for running the British capital's transport system from buses to the ageing underground railway.
TfL will start marketing the bonds from Monday, and expects to issue and price the deal in the next couple of weeks, Walder said. This first deal will be a 30-year issue of between 200 million and 400 million pounds.
"What we've done is established a key tool in our financial toolbox, which has been very limited," Walder told Reuters.
"The metaphor I often use is that we had a toolbox that had so few tools that we'd be banging nails in with the back end of a screwdriver."
The bond is part of a 3.3 billion pound medium-term note programme, of which up to 400 million pounds may be issued this year. Walder said TfL may also use bank loans or leasing structures in the future, but planned to remain flexible.
"We will determine the issuance schedule from here on the basis of when the resources are needed," he said.
The maturity of the initial issue matches the minimum useful life of the assets that investment is going into, he said.
Issuance is only planned in sterling. "The only rationale for doing other currencies would be if you felt you were extending beyond the boundaries of the capacity of the sterling market. I don't think we're in that position," he said.
The bond is rated AA by Standard & Poor's and Fitch Ratings, two notches below the top triple-A ranking. HSBC and Morgan Stanley are managing the sale.
With the bond issue, "we will have solidified the financial structure that underpins the business plan and this investment programme in a way that we can completely concentrate on delivering what we've said we're going to," Walder said.
FIVE-YEAR AGREEMENT KEY: The key to the 10-billion-pound investment programme is the five-year agreement between the government and TfL that allows the issuance of debt.
"This is at least a medium-term agreement that will allow and facilitate the type of planning that has eluded the transport system," Walder said. "It is a groundbreaking agreement."
But the challenge is substantial. "London has moved from having the transport infrastructure that was the envy of the world to having a transport infrastructure that unfortunately, over a period of decades, was allowed to decay," he said.
There have been some successes for Transport for London, he said, such as the bus system, where passenger numbers are up, the congestion charging system in central London, and the new Oyster fare system on underground trains.
Coverage of the transport system in the UK media, however, is largely negative. Bond investors will have an investment in a system that is constantly in the public eye and the subject of many complaints.
TfL faces bigger challenges than in the past too. Walder said the project to extend the East London underground line, involving investment of nearly 900 million pounds, is the largest the authority has undertaken outside the sphere of the private finance initiative (PFI) or public-private partnerships (PPP).
But the bond programme should ease the challenge. "By separating the financing of that project from the delivery of that project, we can focus very clearly on the delivery," he said.
Still, "there are processes that are outside of our control ... there will be unforeseen conditions. One has to be confident within the overall programme that we can manage those situations," Walder said. "We're pretty confident that we can do that. Which doesn't mean that everything is going to be perfect," he said.
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