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Opportunity abounds in structured finance Back  
The Irish market saw lower deal volumes in the current year partly reflecting the slowing global economy but also the fact that 2000 represented the culmination of a period of exceptionally strong investment activity. However Christine Moran said notwithstanding this there was still considerable transaction and development activity ranging from buyouts in the SME sector to the national roads programme.
Management buy outs (MBO)
Such opportunities arise from factors such as succession issues, companies consolidating and disposing of non-core operations and the taking private of smaller Plc’s.

Whilst banks are more conservative in recent months, there remains a strong funding appetite for robust proposals. This has been demonstrated by two transactions that have closed in November 2001.

These were the MBO of Servequip (a contract catering firm) and the MBO of IDI Ltd (a Dublin based international management consultancy firm). In the latter case, where funding was provided by IIB Bank, a critical factor in completing was the strength and experience of management, which is a key driver of any MBO.

Public Private Partnerships (PPP’s)
Activity in PPP’s gained momentum during the year with the first two pilot projects in the education sector (Cork School of Music and the Five Secondary Schools Bundle) achieving financial close. The third education project, the National Maritime College is reduced to three bidders and bank supported final bids were submitted in November. It is expected that the Government will announce a further round of projects in these areas over the next year.

PPP projects in the roads sector are progressing steadily. The Second West Link Bridge is currently under construction and the bidding process for the N25 Waterford By-Pass and the N4 Kilcock to Kinnegad Motorway have been reduced to four consortia in each case. Most of these consortia, representing a mix of experienced local and international firms have assembled two or three banks to support their bids, which are due in the first quarter of 2002. Four consortia have also recently been shortlisted for the Fermoy By-Pass.

The strong involvement to date of Irish based banks, law firms and financial advisors in Irish PPP’s is evidence of the depth of experience that has developed domestically in this area. Banks, law firms and financial advisors are complementing strong domestic teams with international PPP specialists, particularly in the transport and education sectors. In IIB’s case, our colleagues in KBC Project Finance Dublin, consolidated their position as a leading project finance player in Europe when they secured the lead bank role on the •2.6bn HSL Zuid Project in the Netherlands. This project achieved financial close on 30th October and was the largest PPP in Europe this year and the first such project in Holland. Such a landmark deal adds to the experience available in Dublin for PPP transactions.

Project Finance and Power
Activity in the power market during 2001 ranged from small independent windfarms to large scale independent power plants (IPP’s). Progress in developing IPP’s has been slower than anticipated reflecting a variety of commercial issues over the past 12 months. It is anticipated that very few deals will be financed during 2002.

By contrast there is expected to be a high level of activity in wind farm financing during 2002 with sponsors expected to seek up to •250m of long term debt finance for projects under the Government sponsored Fifth Alternative Energy Requirement (AER 5) competition. Bids were submitted at the end of November 2001 for the award of 15-year partly index linked offtake contracts with the ESB for up to 250mw of wind capacity.

There was disappointment in the wind energy industry that the budget did not provide a further tax incentive to support the development of this industry and supplement the limited reliefs currently available.

Tax Based transactions
There was a continuing level of activity in tax based transactions during the year in established areas such as hotels and car parks. However the real development is in newer areas such as childcare. Since these reliefs were introduced operators have been successfully working to resolve the commercial issues attaching to such ventures. Given the strong underlying demand for this sector coupled with the taxation incentives it is expected that 2002 will see the start of a strong flow of deals. Whilst similar tax reliefs are available for private hospital facilities and nursing homes these have not yet progressed as quickly as anticipated pending resolution of certain commercial issues.

A number of interesting transactions were completed involving Irish universities during the year. One such transaction, which was arranged by IIB Special Finance, involved the development of a library and information technology centre for DCU. Such transactions involve parties (usually financial institutions) taking the benefit of capital allowances under S.843 on such buildings over seven years with the universities benefiting from a reduced funding cost. Given the strong covenants, such deals were extremely competitively bid by funders.

For 2002, whilst the short term outlook may be more challenging than in the past, the underlying resilience of the economy together with an increasing demand for facilities and services should provide for an increased level of activity across the board.

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