If you are an investor in Network Rail bonds, here are answers to questions you may have
Network Rail Infrastructure Limited (NRIL) is the owner and operator of the national rail network of Great Britain including track, signalling, bridges, tunnels, stations and light maintenance depots.
NRIL also owns substantially all stations, virtually all of which are leased to and operated by the passenger train operating companies but NRIL itself operates a number of mainline stations.
The issuer under the Debt Issuance Programme is Network Rail Infrastructure Finance Plc (NRIF), which was incorporated for the sole purpose of raising finance. All the money raised from the debt issued by NRIF, after re-financing and service of debt, is on-lent to NRIL.
The rating of our debt is linked directly to that of the UK Government. The DIP is rated AA by Fitch, AA by S&P and Aa1 by Moody’s.
The UK Government currently has a sovereign credit rating of AA by Fitch, AA by S&P and Aa1 by Moody’s.
Under the terms of the guarantee we are required to pre-fund all coupon and principal payments into a specified pre-funding account, six business days and 21 business days respectively, in advance of the payment date. Commercial Paper maturities are pre-funded six business days in advance of maturity.
If the money is not pre-funded a notice of claim is submitted on the UK Government and the UK Government is obliged to pay out in full prior to the payment date.
The risk that investors are taking is therefore UK Government payment risk. This is a unique feature of our Debt Issuance Programme compared to other government guaranteed issuers.
Further details on the mechanics of the guarantee structure are contained within the “financial indemnity” section of our information memorandum (PDF).
Network Rail debt carries a 0% risk weighting with the FCA.
Network Rail bonds are considered eligible for repo transactions with the Bank of England, though this will be determined on an ISIN by ISIN basis.
Network Rail's revenues are set by the Office of Rail and Road in regular access charges reviews and will typically be fixed every five years. Currently around two thirds of Network Rail's income comes direct from the UK Government. Principal sources of income are:
- Track access income from train operating companies and freight operating companies under access agreements
- Revenue grants from the United Kingdom Department for Transport and Transport Scotland
- Income from commercial property, other train operators, stations, depots and from certain other assets
Network Rail bonds are listed on the London Stock Exchange. Clearing of the bonds takes place through one or more clearing systems (as specified in the documentation of the particular bond issue) such as Euroclear, Clearstream, CREST and the Depository Trust Company (DTC – for 144A transactions).
The structure of the guarantee means ultimately any investor in Network Rail bonds is assuming UK Government payment risk. The government guarantee also pays out in the currency of the debt service shortfall so noteholders will be paid in the currency in which they invested.