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According to one commentator, Network Rail's plan to securitise £9billion of debt against Railtrack's track access charges is the financial equivalent of the philosopher's stone. Nirvana awaits as low cost capital floods into our industry.
Would that it were so. We too would call down blessings on Transport Secretary Stephen Byers' head for bring about a situation where such as scheme became possible.
But it isn't. Securitisation of track access charges which contain a substantial slug of Government subsidy is not some amazing piece of financial engineering conjured up by newcomer Network Rail and its banks.
Anywhere you have assured cash flows, you can securitise. The Rolling Stock Companies did it almost as soon as they were sold, selling bonds based on their hell or high water lease rentals with the train operating companies, which similarly contain a slug of subsidiy and are underwritten by the Strategic Rail Authority.
Securitisation is such a blindingly obvious way to lower the cost of capital of companies with government supported if not guaranteed secure cash flows, that even dozy old Railtrack had thought of the idea. Indeed, shortly before it was forced into Administration by Stephen Byers, the company had developed a securitisation proposal and was close to obtaining Regulatory approval for its implementation.
So, at best, all that Byers' intervention has done is defer the application of an obvious funding technique by a year or so. But what about the £9billion that Network Rail is planning to raise, first as a bridging loan and then as securitised low cost debt? Surely that has to be good news?
Well, no. Because there is no new money - just the same old money refinanced. Or rather the same old money plus some additional debt, refinanced.
To recapitulate, of the £9billion funding to be raised by Network Rail £6.5 billion will buy out Railtrack's debts. Another £400million pays back inter-company debt within the former Railtrack. And £200million goes on pacifying the share and bond-holders who wanted Byers' blood preferable extracted his living body in court by a 21st Century Portia QC .
What is left will be used as working capital, to keep the business running during the remaining four years of Control Period 2.
So much for £9billion, which is not unadjacent to the £8.8 billion that Railtrack was expecting its borrowings to reach by the end of CP2. Unfortunately, Railtrack will come out of Administration with about £2.5billion more of indebtedness that than when it went in. but with no more pounds in the ground to show for it.
So, no financial nirvana. But Network Rail seem to be joining in the euphoria. In their first interview with the railway trade press (Informed Sources px) Chairman Ian McAllister and Chief Executive Iain Coucher claim that they will not need an interim review of track access charges to take Railtrack funding through to the end of CP2 in 2006.
Well, we hear what they say. But over at the Black Tower at Euston, Railtrack Chief Executive John Armitt and his team are veering away on an Interim Review, which they know they will need because there are already spending more than Rail Regulator Tom Winsor awarded them in his Periodic Review.
We have every expectation that Network Rail will, after all, progress Railtrack's Interim Review when they take the company out of administration, hopefully by August. The problem is that the rush to save the Transport Secretary from a mauling in court resulted in Network Rail being untimely ripp'd from the financial womb and it is now trying to put on credibility fast. It will be a big step forward when they finally meet the Railtrack management and get a better perspective on which way is up.
As a senior figure in the railway industry remarked to us recently, apropos the current situation, it is a real bugger's muddle'. That said McAllister and Coucher are genuine heavyweights, and anything that cuts through the manifold uncertainties of administration is to be welcomed. If we have a poorer but wiser infrastructure owner back in business by the Winter timetable it will be a form of progress, but one to be greeted with sighs of relief rather than acclamation.
And then it will be time for the government and industry to re-engage with the structural problems of a flawed privatisation. Memo to Richard Bowker/ Tom Winsor make sure you have a long honeymoon/summer holiday, the 2002 Autumn offensive will need you and your organisations in top form.