to support subordinated debt. In green shipping finance, a guarantee scheme is
preferable to a direct loan because it requires a partnership between the investor
and the EIB. Such a partnership, it might be suggested, increases the sense of
ownership and empowerment in the project by the undertakings in question. Without
delving into too much of the technicalities, the initial step in the GSGP is the forging
of a Framework Agreement with a lead partner financial institution. That Agreement
sets out the central terms of cooperation between the partners. Those terms should
necessarily include agreed funding arrangements, the guarantee envelope, transaction eligibility, the approval process, default events etc. The financial institution
might also be the main lead arranger—which entails assembling a syndicate to
provide the financial facility. The arranger also usually underwrites the financing—its preparedness to do so is enhanced by the guarantee given by the EIB. As
a requirement of its mandate from the project sponsor, the MLA will be committed to
raise the complete debt financing but syndication allows other providers to have a
share in the debt financing thus re-distributing the credit risk. From the EIB’s
perspective, syndication is useful as it brings a wider range of financial undertakings
into the project, thus ensuring that EU taxpayers’ money is properly managed
through prudential risk redistribution efforts.
Working collaboratively, as required by the Framework Agreement, the lead
financial institution will invite, process, screen and assess the feasibility and eligibility of the applications. Shortlisted applications are then presented, again as
provided for by in the Framework Agreement, to the EIB for consideration and
pricing. The advantage this produces, in contrast to some other financing schemes
provided by the EIB, is that as the vetting process has been “outsourced” to the
partner financial institution making the process internal at the EIB much quicker.
The accelerated or short approval cycle also means that the EIB does not need to
appoint an extensive panel of experts, reducing also costs. Upon agreeing the final
terms between the partner financial institution and EIB, a final contract is then
entered into between the partner financial institution and the EIB, and the partner
financial institution shall proceed to conclude the transaction with the borrower
applicant. Another aspect of the arrangement which makes good prudential sense
to the EIB is the fact that under the Agreement, the partner financial institution is
ultimately responsible for “client interface”, “market interface” and transaction
control.
57 The EIB stands at arm’s length to the transaction.
57 See M. Clintworth’s presentation of the EGSG in September 2018 (https://www.marinemoney.
com/system/files/media/2018-09/2.Mr_.%20Mark%20Clintworth.pdf); a similar presentation was
given by another EIB official, Francois Gaudet at https://ec.europa.eu/inea/sites/inea/files/4.green_
shipping_presentation.pdf.
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J. Chuah
preferable to a direct loan because it requires a partnership between the investor
and the EIB. Such a partnership, it might be suggested, increases the sense of
ownership and empowerment in the project by the undertakings in question. Without
delving into too much of the technicalities, the initial step in the GSGP is the forging
of a Framework Agreement with a lead partner financial institution. That Agreement
sets out the central terms of cooperation between the partners. Those terms should
necessarily include agreed funding arrangements, the guarantee envelope, transaction eligibility, the approval process, default events etc. The financial institution
might also be the main lead arranger—which entails assembling a syndicate to
provide the financial facility. The arranger also usually underwrites the financing—its preparedness to do so is enhanced by the guarantee given by the EIB. As
a requirement of its mandate from the project sponsor, the MLA will be committed to
raise the complete debt financing but syndication allows other providers to have a
share in the debt financing thus re-distributing the credit risk. From the EIB’s
perspective, syndication is useful as it brings a wider range of financial undertakings
into the project, thus ensuring that EU taxpayers’ money is properly managed
through prudential risk redistribution efforts.
Working collaboratively, as required by the Framework Agreement, the lead
financial institution will invite, process, screen and assess the feasibility and eligibility of the applications. Shortlisted applications are then presented, again as
provided for by in the Framework Agreement, to the EIB for consideration and
pricing. The advantage this produces, in contrast to some other financing schemes
provided by the EIB, is that as the vetting process has been “outsourced” to the
partner financial institution making the process internal at the EIB much quicker.
The accelerated or short approval cycle also means that the EIB does not need to
appoint an extensive panel of experts, reducing also costs. Upon agreeing the final
terms between the partner financial institution and EIB, a final contract is then
entered into between the partner financial institution and the EIB, and the partner
financial institution shall proceed to conclude the transaction with the borrower
applicant. Another aspect of the arrangement which makes good prudential sense
to the EIB is the fact that under the Agreement, the partner financial institution is
ultimately responsible for “client interface”, “market interface” and transaction
control.
57 The EIB stands at arm’s length to the transaction.
57 See M. Clintworth’s presentation of the EGSG in September 2018 (https://www.marinemoney.
com/system/files/media/2018-09/2.Mr_.%20Mark%20Clintworth.pdf); a similar presentation was
given by another EIB official, Francois Gaudet at https://ec.europa.eu/inea/sites/inea/files/4.green_
shipping_presentation.pdf.
146
J. Chuah