RISK SHARING FINANCE FACILITY

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• RISK SHARING FINANCE FACILITY
• Research Connection 2009

Prague 8 May 2009
Anna Krzyzanowska
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Risk-Sharing Finance Facility (RSFF)

• Introduction

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EU hampered by low private sector investments
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Risk-Sharing Finance Facility (RSFF) The
investment and financing gap

• Despite increased FP 7 budget for 2007 2013
  (EUR 54,6 billion), there is a lack of funding
  for excellent and top quality RD projects at EU
  level
• Investment in RD is crucial for Europes
  competitiveness and growth potential
• Lack of private investment in RD has been
  identified as the single key factor for Europes
  relatively weak total investment in R D
• RD investment carries a high(er) risk and
  uncertainty scarce financing resources in Europe
  for such risky projects (market deficiency)

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A political request to increase financial
support to RD

• December 2005 European Council
• The European Council invites the Commission in
  cooperation with the European Investment Bank
  (EIB) to examine the possibility of strengthening
  their support for Research and Development by up
  to a maximum of EUR 10 billion through a
  financing facility with risk-sharing components
  to foster additional investment in European
  research and development, particularly by the
  private sector.

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Risk-Sharing Finance Facility Added value

• An innovative financing mechanism to
• Foster increased private investment in research
  by improving access to loan finance.
• Risk-sharing between the Community and EIB to
  allow
• - Larger volume of risky lending to RD
• - Financing of riskier, but creditworthy
  projects
• Generate a leverage effect so that the volume of
  extra lending by EIB and its partner banks is a 4
  to 6 multiple of the Community funds provided to
  the facility.
• Rely on an existing EIB facility (SFF), and
  therefore benefit from EIB s experience and
  management.

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Risk-Sharing Finance Facility (RSFF)

• Implementation Strategy

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RSFF implementation strategy
Risk categories

• RSFF is a debt based instrument not a grant
• Financing does not involve a subsidy element
• The facility does not concern risk capital such
  as venture capital

RSFF Risk Coverage Range

• RSFF concerns companies or projects mature enough
  to demonstrate capacity to repay and service debt
  on the basis of a credible business plan.
• An external rating is not required.

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RSFF implementation strategy
Eligible project cost

• Project capital expenditures in tangible assets.
• Intangible assets
• Research staff cost
• Incremental working capital requirements
• Acquisition of Intellectual Property Rights

Multi-annual RD budgets (typically 3-4
years)Financing up to 50 of total cost, except
particular cases in line with EIB strategic
orientations (ie environment, renewable
energies )
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RSFF implementation strategy
Beneficiaries of RSFF financing

• Mid-Caps and large corporates (typically unrated
  / sub investment grade / turnaround situations)
• SMEs
• Research Institutes
• Universities
• Special Purpose / Project Companies
• Research Infrastructure promoters

Any size and ownership
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RSFF implementation strategy Financing modes
individual financing
Indirect loans / guarantees
Direct loans / guarantees
Guarantee
Comm. bank (Co-finance)
Refinancing/Guarantee
Loan or Guarantee
Loan
Commercial bank
Loan
Beneficiary (promoter)
Borrower (promoter)
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Risk-Sharing Finance Facility (RSFF)

• An approch to smaller projects

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SMEs Complementarities between CIP and FP7
(RSFF)
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Risk Capital
CIP Resources (SME)
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RSFF (SME / MidCap)
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• Facility High Growth Innovative SME Scheme
  (GIF), Ecotech
• Purpose IP financing, technology transfer, seed
  financing, investment readiness
• Target Group VC Funds, Business Angels
• EIF Product Fund-of-Funds

• Facility CIP Guarantee schemes
• Purpose Growth financing for SMEs
• Target Group Formal VC Funds, CLOs
• EIF Product SME guarantees (loans, microcredit,
  equity/mezzanine, securitisation

• Facility RSFF
• Purpose RDI financing
• Target Group SMEs/MidCaps, Banks, PE Investors,
• EIB Product Loans (incl. Mezzanine), Funded Risk
  Sharing Facilities with Banks (Investors)

Bank Loans and Guarantees
Formal VC Funds
Seed/Early Stage VC Funds
Business Angels
Entrepreneur, friends, family
Seed / Start-Up Phase
Emerging Growth Phase
Development Phase
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EIB and its partner banks (intermediaries)
For loans of EUR 7.5 million or more - direct
involvement by the EIB
EIB
Borrower
For all loans where borrowers wish to work with
their own banks, in particular those of less
than EUR 7.5 million - sharing of RSFF
benefits with intermediaries (e.g. through
partial guarantees)
Refinancing/ Guarantee
EIB
Intermediary
Borrower
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Risk-Sharing Finance Facility (RSFF)

• Results to date

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RSFF results and portfolio

• Volumes EUR 2.4 billion authorised by the EIB
  under RSFF by February 2009, of which 1.488
  billion have already been signed (under EC
  window 48 , EIB window 52 )
• Main sectors financed so far renewable energy
  technologies, engineering and automotive, life
  science and ICT, plus risk-sharing facilities
  with partner banks
• Geographical spread projects located in 14
  countries by early 2009 (approved RSFF projects)
• RSFF financing in the form of direct corporate
  loans, project finance to special purpose
  vehicles and risk-sharing arrangements for
  mid-cap / SME projects

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RSFF portfolio
Geographical Spread signatures until 30/11/2008
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And the crisis in all this?

• The current market sentiment
• (i) significant increases in credit spreads,
• (ii) sharp decline in commercial bank financing
  supply due to funding as well as capital
  constraints of banks in the market and
• (iii) decreasing RDI investments due to expected
  economic down-turn.
• The implications for RSFF are both positive (more
  projects) and negative (high mortality rate
• Market/business risk profiles increased
  significantly hence an increase in credit risk
  for new transactions but also for existing RSFF
  loan exposures.
• Execution time for new operations is expected to
  increase and sophisticated financial structuring
  to mitigate operational risks more and more
  important

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SMEs/Mid Cap Facility Structures Approved

• Signature of the Automotive Supplier RDI Facility
  (loans and guarantees to RDI projects of SMEs and
  mid cap automotive suppliers in Germany EUR 100m
  EUR 50m) - RSFF
• Approval of KfW Ipex Risk Sharing Facility (loans
  and guarantees to mid-cap companies in Germany
  EUR 100m EUR 50m) - RSFF
• Approval of RZB Group Risk Sharing Facility
  (loans and guarantees to mid cap companies in
  Austria, Hungary, Romania EUR 100m EUR 70m)
  partially RSFF
• Approval of CS Risk Sharing Energy Efficiency
  (loans and guarantees to SMEs in the Czech
  Republic EUR 100m EUR 60m) SMEs, non RSFF

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Risk-Sharing Finance Facility (RSFF)

• Examples

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Financing solar power? using indigenous
renewable energy to contribute to combat climate
change

• Solucar Solar Thermal Power project
• Europe's first commercially operating power
  station using the sun's energy, in west of
  Seville (Spain)
• 50-million RSFF loan to further develop a large
  scale application of Concentrating Solar Power
  (CSP) technology, generating electricity without
  greenhouse-gas emissions
• Field of mirrors to concentrate solar radiation
  on a thermal receiver
• www.solucar.es

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Innovative anticancer treatments ? helping bring
4 cancer drugs to the market

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• PharmaMar Spains leading biotech company
  dedicated to developing innovative anticancer
  treatments from marine origin
• Biopharmaceutical research development in the
  areas of
• oncology and orphan diseases
• Different forms of cancer targetted, including
  rare cancers
• 30-million RSFF loan
• www.pharmamar.com

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Cleaner engines ? improving energy efficiency

• AVL Austrian family-owned specialist with strong
  reputation for producing fuel-saving technologies
  for powertrain systems
• Offers research and development support to many
  major car manufacturers worldwide.
• 30-million RSFF loan to help AVL extend
  powertrain RD
• and research in the areas of hydrogen fuel-cell
  technology, nanocomposites and engine
  technologies
• www.avl.com

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Risk-Sharing Finance Facility (RSFF)

• Information contacts

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RSFF contact pointsEuropean Commission, DG RTD

• Directorate B  European Research Area
  Research
• programmes and capacities 
• Unit B.04  Regions of Knowledge and
  Research Potential 
• RSFF Sector
• Jean-David MALO, Head of Unit, (02 299 38 42)
• Martin KOCH
• Marie-Cécile ROUILLON

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RSFF contact pointsEuropean Investment Bank

• Directorate for Operations in the European Union
  and Candidate Countries
• Division Action for Growth Instruments
• Innovation 2010 Initiative (i2i)
• Heinz OLBERS
• Pavla RANDOVA 352 4379 7307
• RDI_at_eib.org
• http//www.eib.org/rsff

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• Thank you for your attention