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									   The Role of RSFF (Risk Sharing Finance Facility)
                 in Financing RDI Investments

Kim Kreilgaard
 1                                     Warsaw, 6 November 2008
    EIB - introduction

    Created with the Treaty of Rome in 1958 as one of the EU institutions
    promoting EU development and integration

    Subscribed capital EUR 164 bn owned by 27 EU Member States (Poland:

    Lending portfolio: about EUR 310 bn, annual loan activity about EUR 45 bn

    Financing projects: motorways, energy, railways, airports,

    ...but also investments in preserving the environment, new technologies,
    development of competitiveness

    EIB corporate financing in Poland

    The EIB is a long-standing financier of corporates operating in capital-
    intensive industries. Traditionally, these sectors included energy, gas&oil,
    telecommunications and many manufacturing businesses.

     In Poland, EIB has signed some 25 corporate financing transactions for a total
     value of close to EUR 2bn
     Two main groups of promoters/projects benefiting from EIB support:
           Large domestic groups operating in capital-intensive sectors: PKN, TP SA, BOT
           (Grupa PGE),PGNiG, LOT
           Foreign Direct Investments carried out by overseas investors: Electrolux, Brembo,
           MAN, Bidgestone, Voestalpine, Mitsui

     EIB ready to increase financing to domestic companies in technology
     intensive sectors and in other areas on a bilateral basis

Risk Sharing Finance Facility
A new Source of Risk Capital

                                           EIB RSFF funds complement other sources of debt
             Own Resources
                                           capital available for low/sub investment grade RDI
                                           intensive corporates
       EUR 1bn         EUR 1bn
                                           EIB RSFF funds are highly attractive for potential
             EIB (RSFF)                    beneficiaries because of:
             2007 - 2013                     1.   Highly attractive terms & conditions (AAA
            Approx. EUR 10bn                      rating and non-for-profit pricing)
             Debt Financing
                                             2.   Long maturities of up to 10 years or more
    Banks                      Investors
                                             3.   Direct EIB participation of up to EUR 200m per
                                                  transaction (depending on rating)

                                             4.   Strong technology/industry expertise
         Final Beneficiaries
      Low/Sub Investment Grade               5.   EIB does not sell assets on the secondary
                                                  market (buy and hold strategy)

                                             6.   No cross selling (just long-term lender)

                                             7.   Signalling Effect: EIB as a quality stamp

                                             8.   Debt and Mezzanine Debt Product

Risk Sharing Finance Facility
Risk categories

           Moody's S&P and Fitch
                                    •RSFF is a debt based instrument not a grant
             …          …
             A1         A+
                                    •Financing does not involve a subsidy element
             A2         A
             A3         A-          •The facility does not concern risk capital such
            Baa1      BBB+          as venture capital
            Baa2       BBB
            Baa3      BBB-
            Ba1        BB+
            Ba2        BB                         RSFF Risk Coverage Range
            Ba3        BB-
             B1         B+
             B2         B
             B3         B-

      RSFF concerns companies or projects mature enough to demonstrate
    capacity to repay debt on the basis of a credible business plan.
      An external rating is not required.
Risk Sharing Finance Facility
Eligibility categories

                                  Fundamental research

                            Definition stage / feasibility studies

                                    Industrial research

                           Pre-competitive development activity

                             Pilot and demonstration projects


    Geographic Scope: EU 27 and Associated countries (Iceland, Liechtenstein, Norway,
    Switzerland, Israel, Turkey, Croatia, FYROM, Serbia, Albania and Montenegro)

Risk Sharing Finance Facility
Key Sectors

                                               Rationale for Selection
    1   Engineering/Automotive
                                         Scope of Sector

    2           Energy                   EU Policy Dimension

                                         Key RDI Trends
    3            ICT                     Strong EIB Track Record in the industry

                                         RSFF Implementation Strategy
    4        Life Science

    5     RDI Infrastructures

        Product Development      Sector Know-How           Long Term Financing

RSFF Eligible Cost Definition

                            ELIGIBLE COSTS                             Eligible project cost include: project capital
                                                                       expenditures in tangible & intangible assets,
                                      • Project related CAPEX on       research staff cost, incremental working capital
         Year 1           € 30m

                                        tangible & intangible assets
                                                                       needs and other related operating expenses.
                                      • Research staff cost
         Year 2           € 40m       • Incremental working capital
                                                                       R&D budgets typically cumulated over 3 years.
                                      • Related operating costs
         Year 3            € 30m                                       In addition, prototype development +
                                                                       demonstration plants + any form of innovation
             Total        € 100m                                       conducted on own behalf or for OEM customers is
                                                                       deemed eligible.

                                                                       In addition to the financing agreement, a Project
  Eligible Costs
  RDI Budget                                                           Implementation Agreement will be signed with the
       120    mEUR
                                                                       The agreement describes the project, the eligible
                                           50%                         project costs and the foreseen time-frame. It
                                                                       further stipulates project reporting requirements
       60                                                              and project related remedies/covenants.
                     Eligible Costs      Max. EIB Financing

EIB financing solutions under RSFF
Key counterpart groups

           I. Corporate / Project Finance                            II. Risk Sharing with Universities
    • Targeted beneficiaries: Mid-sized and large
      corporations (low/sub-investment grade),                 Targeted beneficiaries: Universities, research institutes,
                                                               science parks,
    • Product Ideas: RSFF loans and guarantees
                                                               Product Idea: RSFF loans and guarantees; Royalty fund,
      (Structured individual corporate loans - senior/junior
                                                               EIB value added: Increased access to financing for
      debt, mezzanine),
                                                               universities; facilitates partnerships and PPPs; monetize
    • EIB value added: Lower Financing Cost, increase of       royalty streams of research results (e.g. patents.
      debt capacity (in case of subordination), project risk

                                           NEW PRODUCT DEVELOPMENTS

      Targeted beneficiaries: Joint Technology Initiatives      Targeted beneficiaries: SMEs & Mid Caps
      (JTIs), European Technology Platforms (ETPs), Multi       (low / sub-investment grade),
      country Research Infrastructures (ESFRI),                 Product Ideas: RSFF loans and guarantees, Risk
      Product Ideas: PPPs, SPVs and RSFF/ERCF loans             Sharing Global Authorisations,
      and guarantees for R&D programmes,                        EIB value added: Beneficiaries: risk sharing, higher
      EIB value added: facilitate both public an private        debt capacity, lower financing cost; Banks: risk sharing,
      sector financing of Research Infrastructure through       capital relief, customers cross selling.
      conventional as well as structured finance.

     III. R&D and Infrastructure Consortia                              IV. Risk Sharing with Banks

Corporate Finance

     OPTION 1: Parallel Financing Approach                        OPTION 2: Back-to-Back Financing Approach

                Optional Refinancing                                             Guarantee OR
                                                                             Funded Risk-Participation

         EIB (RSFF)                Bank(s)                             EIB (RSFF)                 Bank(s)

          EIB Financing          Co-financing                                                  Loan /
                                 (not necessary)                                               Mezzanine
          - Senior Loans
          - Junior Loans
          - Mezzanine

               Technology Company                                             Technology Company
                  (Eligible Project)                                             (Eligible Project)

         To finance individual projects, EIB can either act as the sole financing provider or as a co-financing
         partner to other bank(s).

         In the case of co-financing, EIB could provide a direct financing agreement in parallel to other
         financing(s) from financing partner(s) or provides back-to-back to the financing partner(s).

         EIB financing contracts normally are in line with market standards (protective clauses, covenants, etc.)
         but will always be structured according to the needs of the borrower.

         EIB financing can also be junior to co-financing banks (e.g. Mezzanine financing)

Corporate Finance
Case Study 1: Syndicated Loan Financing
      Club Deal / Syndicated Loan                           EIB can also contribute Value Added to
                                                            Syndicated Loans and/or Club Deals.
                    Guarantee OR
                Funded Risk-Participation                   In this case, EIB will receive from the promoter
                                                            via the agent bank market pricing for EIB’s risk
           EIB (RSFF)           Arranging Banks             participation. The respective Financial Value
                                                            Added (i.e. the difference between market price
               Project              Loan /        Market    and EIB internal price requirement) will then be
     FVA       Implementation       Mezzanine     Pricing   directly transferred after project implementation
                                                            agreement to the promoter.

                 Technology Company                         It is crucial that EIB will be involved at an early
                    (Eligible Project)                      stage as the approval time-frame of the Bank
                                                            normally collides with syndicate time-tables.

                                                            EIB project related covenants can be
                                                            implemented in different ways and need to be
                                                            structured according to the needs.

Corporate Finance
Case Study 2: Direct Loan – Turn-Around Situation
     Financing Structure                                          Performance Based Pricing Grid
                                                                                                   Performance Covenant
                 Refinancing: EUR 30m                                                              Net Adj. Debt / EBITDAR

         EIB (RSFF)                    House Bank                                                Default
          EIB Financing                Co-financing
          EUR 30m                      EUR 30m                                              Price Step-Up
          Unsecured Senior Debt (6y Amort.)
                    Pari Passu, F-Covenants,                                                  Base Line
                 Change of Ownership/Control,                                                               Ba1/Ba2
            Limitations on Asset Sales/Distributions

                                                                                           Price Incentive Baa/Ba1
         German Automotive Supplier (~BB)
          EIB Financial Value Added: 30%
                                                                   2006   2007   2008…                           years

        EIB provided a highly RDI intensive German Tier 1 supplier company together with its main house bank a
        senior unsecured term loan of EUR 60m.

        EIB total financial value added (incl. refinancing of the partner bank) was approx. 30% compared to market
        pricing (i.e. house bank pricing).

        The company at that time was in a turn-around situation focusing on restructuring its US-operations.

        EIB analysed and validated the turn-around concept (incl. financial model) with own resources and provided a
        “tailor-made” long-term financing solution with an individual pricing mechanism, which anticipated the
        success of the turn-around.

 Project Finance
 Case Study 3: University Finance Example

 University investing EUR 30m in clean room technology and seeking partial debt financing to leverage budget
 allocation :

       University                  EIB               Partner Bank         •    Total Debt Financing: EUR 20m

         Budget allocation and     Direct Loan           Direct Loan
         contribution in kind      EUR 10m               EUR 10m          •    Credit Rating of SPV: Ba3
         EUR 10m

                                                                          •    Senior secured loan: 10 years

                          SPV – Clean Room
                                                                          •    Structured Finance with cash
                                                                               flow finance underpinned by
                 Use of facility                       Revenue                 minimum level of utilisation

                     Private + public sector users
                                                                          •    Limited recourse to University

R&D and Research Infrastructure Consortia

           Large Hadron Collider                 Free Electron Laser
               CERN, Geneva                            Trieste

     Nano-technology R&D centre of IMEC   Laboratory infrastructure of EMBL
                  Leuven                             Heidelberg

 R&D and Research Infrastructure Consortia
 The ESFRI RSFF Capital Facility (ERCF)

                                                The repayment of the public sector tranche is
                                                made through budgetary commitments of
          Public Sector Tranche:                partner countries over the long term (5-30 yrs)
     Facility to finance peak & bridge
          financing requirements                Key Advantages:
       faced by committed partner               1. Meet peak & bridge financing requirements;
                   countries                    2. Provide contingency cover for cost overruns;
                                                3. Can finance eligible operating costs &
                                                associated infrastructure

                         ERCF… The ESFRI RSFF Capital Facility

                                                           Public Sector Tranche
        Project Specific Tranche:
       Finance individual projects
      including associated facilities                         Total Costs:
         With limited recourse to
       committed partner countries
                                                              Project Tranche

Risk sharing with banks

                    Support for Small and Medium sized
                 Enterprises: A strategic objective of the EIB

                 A network of more than 150 bank partners
                    across EU and Associated Countries

                 Expertise in key RDI sectors and activities

        Close to EUR 6bn of finance to more than 30.000 SMEs in 2006

Risk sharing with banks
Rationale and potential synergies
                         Direct access to promoters with national geographical focus

            Partner      Structuring and due diligence expertise & capacity

            banks        Track record in direct/indirect low/sub- investment grade lending (incl.
                         Mezzanine financing)

                         Regulatory capital constraints, rating sensitivity, Basel II impacts

                                                                   Partner banks / EIB
                                                                   Co-financing of RDI

                          RSFF resources (European Commission) -> high long-term capacity for
                          low/sub-investment grade lending to RDI intensive counterparts / projects

                          Attractive funding costs, competitive risk pricing

                          Strong sector/technology know-how

                          European scope

                          Strong track record in co-financing and risk sharing with
                          commercial/promotional banks across Europe

Risk sharing with banks
Case Study 4: Contingent loan with KfW IPEX

                                                           KfW IPEX Bank GmbH

                                      50% of Credit Risk

                                                                   50% Funding

            SME                      Risk Sharing
           SME               Loans                                                                            Delegation
       Sub-investmentgrade             Facility:                                                              Model
                                                                                         50% Funding
                                                                                         Contingent Loan
     Sub-investmentgrade             ~ EUR 100m                                          Disbursements

                                      50% of Credit Risk

                                                                             Risk Sharing

                                                   Provisioning/Capital Allocation from EC RSFF resources (FP7)

Risk sharing with banks
Key Facts – Final Beneficiary and Project
     1. Company Size                             4. Risk Spectrum

        Companies (incl. SPVs) of all size and        Depending on maturity and possible
        ownership                                     security covenants

        Strategic focus: small-sized and mid-         Between BBB-/Baa3 and BB/Ba2
        sized companies                               equivalent counterpart rating

     2. Eligible Investments                     5. EIB Risk Coverage

        Investments in R&D and Innovation             EIB covers 50% of the defined loan
        (max 3y investment horizon)                   loss: 50% x (principal amount +
                                                      contractual interest + default interest –
        Project size: up to EUR 25m                   external recovery costs)
        EIB finances up to 50% of project cost

     3. Scope of the Delegation Model            6. Security
          Origination                                 Sub-loans: pari-passu on security with
          Execution (Appraisal, Structuring)          financial intermediary

          Documentation                               EIB pricing risk commensurate

          Monitoring, Work-Out, Enforcement

 RSFF Track Record 2007

     2007 RSFF Signatures / Approvals (EURm)             2007 RSFF Signatures
                                                         by Country (EURm)             Austria;
                                   EUR 887.4m                                         EUR 30m
                                 Bank Risk Sharing 100
     700                             Lifescience                                EUR 80m
                                         333                                                      Spain;
     600         EUR 459m                                                                          EUR
     500                                                                                          249m
                                     Engineering                                  Italy
     400            130                   160                                     EUR
     300                                                                          100m
     200                               Energy
     100            219

                 Signatures           Approvals

            To date, RSFF signatures amounted to EUR 459m (close to target of EUR 500m).
            Approvals reached some EUR 0.9 billion

            Main sectors financed: renewable energy technologies, engineering/automotive and life

 Added value of EIB involvement

     Financing flexibility: provide debt financing adapted         to   project
     implementation and the borrower’s repayment capacity
     Improved financing conditions; advantage of EIB’s AAA based funding is
     passed on to the borrower in order to reduce overall project cost
     Increased access to financing: additional supply of loans/guarantees from
     EIB; joint financial products with Commission (RSFF, leveraging FP7
     funds) and through co-financing with financial markets
     Risk sharing: share financial risks with promoters and consequently
     reduce their risk adjusted cost of capital
     Signalling Effects: Due to the Bank’s reputation for its prudent lending
     policy and its strong market/technology know-how, the EIB provides
     learning/signalling effects for other Banks

 Implications – Points for discussion

     Objective of RSFF – supporting innovative companies
     Financing needs of innovative Polish companies?
     Financing offer on the financial and banking market matching the needs?
     Complementary offer by EIB?
     Scope for cooperation with the co-sponsors of the present workshop, i.e.
     Polish Technology Platforms and the National Contact Point for FP7, the
     Polish Agency for Enterprise Development, the Polish Bank Association
     and the Ecofund and other Polish stakeholders in supporting innovation.
     Specialised products addressing the financing needs and possible role of
     EIB’s offer to corporates and utility companies in Poland beyond RSFF.

      Tilman Seibert Director, Baltic Sea Department
     Tilman Seibert ––Director, Baltic Sea Department
      Tel: +352 4379 87442,
     Tel: +352 4379 87442,

      Kim Kreilgaard Head of Division, Lending Operations in Poland
     Kim Kreilgaard ––Head of Division, Lending Operations in Poland
      Tel. +352 4379 87464,
     Tel. +352 4379 87464,

      Michal Lubienecki, Head of Office, Warsaw
     Michal Lubienecki, Head of Office, Warsaw
      Tel. 48 22 31 00 555,
     Tel. ++48 22 31 00 555,

      Thomas C. Barrett, Director, Action for Growth Instruments
     Thomas C. Barrett, Director, Action for Growth Instruments
      Tel. +352 4379 87006,
     Tel. +352 4379 87006,

      Heinz Olbers Head of Division, Financing of Research, Development and Innovation
     Heinz Olbers ––Head of Division, Financing of Research, Development and Innovation
      Tel. +352 4379 87313,
     Tel. +352 4379 87313,


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