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Peter Katz - Reliance Rail - Case Study: Reliance Rail – Lessons from the largest equipment PPP in the country
Peter Katz - Reliance Rail - Case Study: Reliance Rail – Lessons from the largest equipment PPP in the country
Peter Katz - Reliance Rail - Case Study: Reliance Rail – Lessons from the largest equipment PPP in the country
Peter Katz - Reliance Rail - Case Study: Reliance Rail – Lessons from the largest equipment PPP in the country
Peter Katz - Reliance Rail - Case Study: Reliance Rail – Lessons from the largest equipment PPP in the country
Peter Katz - Reliance Rail - Case Study: Reliance Rail – Lessons from the largest equipment PPP in the country
Peter Katz - Reliance Rail - Case Study: Reliance Rail – Lessons from the largest equipment PPP in the country
Peter Katz - Reliance Rail - Case Study: Reliance Rail – Lessons from the largest equipment PPP in the country
Peter Katz - Reliance Rail - Case Study: Reliance Rail – Lessons from the largest equipment PPP in the country
Peter Katz - Reliance Rail - Case Study: Reliance Rail – Lessons from the largest equipment PPP in the country
Peter Katz - Reliance Rail - Case Study: Reliance Rail – Lessons from the largest equipment PPP in the country
Peter Katz - Reliance Rail - Case Study: Reliance Rail – Lessons from the largest equipment PPP in the country
Peter Katz - Reliance Rail - Case Study: Reliance Rail – Lessons from the largest equipment PPP in the country
Peter Katz - Reliance Rail - Case Study: Reliance Rail – Lessons from the largest equipment PPP in the country
Peter Katz - Reliance Rail - Case Study: Reliance Rail – Lessons from the largest equipment PPP in the country
Peter Katz - Reliance Rail - Case Study: Reliance Rail – Lessons from the largest equipment PPP in the country
Peter Katz - Reliance Rail - Case Study: Reliance Rail – Lessons from the largest equipment PPP in the country
Peter Katz - Reliance Rail - Case Study: Reliance Rail – Lessons from the largest equipment PPP in the country
Peter Katz - Reliance Rail - Case Study: Reliance Rail – Lessons from the largest equipment PPP in the country
Peter Katz - Reliance Rail - Case Study: Reliance Rail – Lessons from the largest equipment PPP in the country
Peter Katz - Reliance Rail - Case Study: Reliance Rail – Lessons from the largest equipment PPP in the country
Peter Katz - Reliance Rail - Case Study: Reliance Rail – Lessons from the largest equipment PPP in the country
Peter Katz - Reliance Rail - Case Study: Reliance Rail – Lessons from the largest equipment PPP in the country
Peter Katz - Reliance Rail - Case Study: Reliance Rail – Lessons from the largest equipment PPP in the country
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Peter Katz - Reliance Rail - Case Study: Reliance Rail – Lessons from the largest equipment PPP in the country

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Peter Katz delivered the presentation at the 2014 Future of Infrastructure Conference. …

Peter Katz delivered the presentation at the 2014 Future of Infrastructure Conference.

The Future of Infrastructure forum explored state and national challenges which impact the long term economic growth and future of infrastructure development in Australia at this time. It also addressed the latest proposals for changes within Australia's infrastructure.

For more information about the event, please visit: http://bit.ly/FutureofInfrastructure2014

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  • 1. The Future of Infrastructure Lessons from the largest rolling stock PPP in Australia 20 August 2014
  • 2. Covering • What is Reliance Rail? • Why was it in trouble? • How did it get out of trouble? • What next? • Lessons to take away 2
  • 3. What is Reliance Rail? Reliance Rail is the special purpose company set up for the Waratah Train Project, a PPP for: • Design, manufacture, testing and commissioning of 78 x 8 car stainless steel double deck train sets, • 2 driver and 2 guard crew training simulators • A new maintenance facility for up to 1000 rail cars • Maintenance of trains, facilities and simulators for 30 years • Total delivery value of $3.6bm (NPV over full term of contract) 3
  • 4. What is Reliance Rail? Key Players *Under a restructure agreement the NSW government has an arrangement to inject equity in 2018 under certain conditions. 4 SYDNEY TRAINS RELIANCE RAIL EQUITY PROVIDERS $312M State $175M* Original Investors $137M Downer EDI AMP Capital RBS IPP DEBT PROVIDERS Bank Debt Westpac NAB Sumitomo Mizuho Bonds Sub-Debt Hitachi Aust-DEDIR Joint Venture Rolling Stock Manufacture Contract Financial Guarantee TRAIN BUILD EDI Rail PPP Maintenance Pty Ltd (100% owned by DEDIR) THROUGH LIFE SUPPORT Through Life Support Contract Maintenance Facility Construction Contract FINANCIAL GUARANTORS FGIC Syncora 50% 50% EDI Rail Pty Ltd (100% owned by DEDIR) FACILITY BUILD Project Contract
  • 5. What is Reliance Rail? Structure Reliance Rail PPP won CFO Magazines’ Annual Structured Finance Transaction of the Year award in 2007. 5
  • 6. Excitement Phase . 6
  • 7. Problems start . 7
  • 8. Perception by 2011 8 Australian 27 Jan 2011 SMH 28 Feb 2011 SMH 2 Apr 2011
  • 9. What went wrong? Key delivery Issues • Design was late, subcontractors changed • International supply chain issues • Time to establish quality benchmarks • Relationship tensions between parties • The first train was delivered 30 June 2011 - 14 months late • 15th set was 20 months late 9
  • 10. GFC impact on Reliance Rail 10 SMH 29 Jan 2011 SMH 19 Oct 2011 SMH 2 Apr 2011
  • 11. What went wrong? Key financial Issues • The GFC happened in 2007 / 8 – had a significant effect on funding confidence • AAA rated monoline insurers downgrade affected Reliance Rail credit ratings • Concern over late delivery of trains • Bond ratings collapsed - Moody’s Senior debt rating (A3 to B3) • Margins on new loans ballooned – creditors investments below new levels 11
  • 12. The roller coaster ride . 12
  • 13. What changed? Delivery • New more experienced management at contractor • Design locked down • Focus on high volume manufacturing • Focus by all parties on outcomes • Increased collaboration between parties • Train delivery rates improved • Practical completion of final train achieved in May 2014 13
  • 14. What was the outcome? 14 Days behind schedule
  • 15. Change in Sentiment 15 Newcastle Herald 30 Jan 2012 Parramatta Advertiser 5 Jun 2013
  • 16. What happened to financing? • Early 2011 obvious significant change required • Banks threatened not to provide finance • Insolvency risk suggested • Financial guarantors tried to exert control, initiated legal action • Dispute between banks and Reliance escalated 16
  • 17. What happened to financing? • Liquidated damages paid by Downer • NSW Government provided certain conditional assurances • Way forward agreed – Government to inject $175m in equity in 2018 subject to specific conditions being met • Bank drawdown achieved, project fully funded 17
  • 18. What happened to financing and the project….. 18 AFR 2 Dec 2013 AFR 6 Sep 2013 SMH 6 Feb 2012
  • 19. Ratings on the way back up 19 Moody’s Senior Bond Rating History Rating
  • 20. Current situation - Delivery • All 78 Waratah train sets in operation • Waratah trains popular with public and operators • Trains have travelled over 15 million kilometres in service • Reliability and availability of trains excellent • Reliance look forward to another 29 years and 6 months of providing trains to Sydney network 20
  • 21. Current situation - Finance • Delivery risk passed • Stable cash flows being demonstrated • Confidence in project finances increasing • Good relationships with key stake holders 21
  • 22. More recent views 22 “the Waratah trains, at one point 18 months delayed, are now the  pride of the city's rail fleet” – SMH 6 July 2014
  • 23. Lessons for next time • Consider carefully the financial structure, the risks and its flexibility to cater for the unexpected • Ensure structure allows variations to be made in a timely and practical way • Expect changes in financial markets and in technical requirements • Ensure all parties understand project requirements, procedures and processes • Collaborate to get results 23
  • 24. Waratah fleet rated ‘the best’ 24 “The Waratahs made up about a quarter of the city’s rail fleet but were responsible for only 5% of faults” “a remarkable turnaround for the Waratahs”

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