Network Rail Infrastructure Finance Plc (NRIF) is a special purpose vehicle through which all debt under the Debt Issuance Programme (DIP) is issued. All debt issued by NRIF is directly and explicitly backed by a financial indemnity from the Secretary of State for Transport acting for and on behalf of the government of the United Kingdom of Great Britain. The financial indemnity is a direct UK sovereign obligation of the crown and cannot be cancelled for any reason (prior to its termination date in October 2052). This UK Government guarantee is:
The DIP is rated AAA by the three major credit rating agencies* and carries the same credit ratings as the UK sovereign. All debt carries a 0% risk weighting and the majority of our benchmark bonds are repo eligible with the Bank of England.
The chart below outlines the structure of this government guarantee:
For a full description of the financial indemnity, please see our information memorandums:
Network Rail Infrastructure Finance MCN Programme Information Memorandum
Network Rail Infrastructure Finance ECP Memorandum
Network Rail Infrastructure Finance USCP Private Placement Memorandum
The key features of the UK Government guarantee are that:
- It is granted directly to investors not to NRIF (or “UKRAIL” as it is known in the market) as issuer
- Investors in our bonds have a direct claim on the UK government
- It is designed to survive any future restructuring of the rail industry or change in government
- It is designed to pay out in the currency of issue, therefore investors take no currency risk
- It has a unique pre-funding structure designed so investors are paid in full on time (more detail below)
Network Rail Infrastructure Limited (NRIL) is the operating company which holds the licence to run the rail infrastructure and NRIF on lends the proceeds via an inter-company loan. Therefore the structure of NRIL can change however the guarantee structure will remain in place until expiration in October 2052.
Unique pre-funding structure
The DIP has a unique pre-fund structure whereby NRIF is required to pre-fund all coupon and principal payments into a specified pre-funding account, 6 business days and 21 business days respectively, in advance of the payment date. Commercial Paper redemptions are also pre-funded six business days in advance of maturity. This is designed so that investors are paid in full and on time in the currency of the original debt issuance. The diagram below summarises the pre-funding structure.
If NRIF fails to pre-fund on the required pre-fund date, a notice of claim can be submitted to the financial indemnity provider (Secretary of State for Transport, the UK Government) and the UK Government is obliged to pay out in full prior to the coupon/ principal payment date. The risk that investors are taking is therefore UK Government payment risk. This is a unique feature of Network Rail’s Debt Issuance Programme compared to other government guaranteed issuers. This is summarised in the below
* On 15th February 2012 Moody placed NRIF (UKRAIL) on negative outlook to reflect the negative outlook on the rating of the UK. On 20th March 2012 Fitch placed NRIF (UKRAIL) on negative outlook to reflect the negative outlook on the rating of the UK. On 13th April 2012 S&P affirmed the AAA stable rating of the UK.
Last updated 26 February 2013