1

RISK SHARING FINANCE FACILITY Growing Galileo 2009

Brussels 28 January 2009

EC – DG RTD – Directorate B – Anna Krzyzanowska

2

Table of Contents

2.

3.

Implementation strategy

Implementation results

1. Introduction to RSFF

4. Awareness raising

5. SMEs/Mid Cap product development

3

• 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.”

A political request to increase financial support to R&D

4

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 R&D projects at EU level

• Investment in R&D is crucial for Europe’s competitiveness and growth potential

• Lack of private investment in R&D has been identified as the single key factor for Europe’s relatively weak total investment in R & D

• R&D investment carries a high(er) risk and uncertainty; scarce financing resources in Europe for such risky projects (market deficiency)

5

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 R&D

- 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.

6

Table of Contents

2.

3.

Implementation strategy

Implementation results

1. Introduction to RSFF

4. Awareness raising

5. SMEs/Mid Cap product development

7

RSFF implementation strategyRisk categories

RSFF Risk Coverage Range

Moody's S&P and Fitch… …A1 A+A2 AA3 A-

Baa1 BBB+Baa2 BBBBaa3 BBB-Ba1 BB+Ba2 BBBa3 BB-B1 B+B2 BB3 B-

•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 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.

8

RSFF implementation strategyStrategic objectives

Support the financing of innovative companies of any size and ownership for the implementation of eligible RDI projects

Provide value added by sharing risks with promoters, banks and other financiers for the financing of eligible projects

Offer RSFF access to small and medium sized projects and companies in all MS and AC

Priority of European Technology Platforms, Joint Technology Initiatives and Eureka

Support European Research Infrastructures (Capacities SP)

9

RSFF implementation strategyEligible project cost

Project capital expenditures in tangible assets.

Intangible assets:

Research staff cost

Incremental working capital requirements

Acquisition of Intellectual Property Rights

Multi-annual R&D 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; …)

10

RSFF implementation strategyBeneficiaries 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

11

RSFF implementation strategyRSFF products

Corporate Loans (senior / junior)

Guarantees

Project Finance (limited/non recourse)

Mezzanine Loans

Risk Sharing Facilities with banks

Other structured products

12

RSFF implementation strategyFinancing terms

Medium and long term financing

Minimum size per loan: > EUR 7.5m (for smaller loans EIB makes available Risk Sharing Bank Facilities

Project assessment : eligibility, techno-economic and financial viability

13

Indirect loans / guarantees

Commercial bank

Beneficiary (promoter)

Refinancing/Guarantee

Loan

Direct loans / guarantees

Comm. bank(Co-finance)

Borrower (promoter)

Loan or Guarantee

RSFF implementation strategy Financing modes – individual financing

Loan

Guarantee

14

Risk Sharing Bank FacilitySmall and medium sized projects

Partner bank

Beneficiary

Loan / Guarantee

(Mezzanine) Loans

Beneficiary Beneficiary Beneficiary

RSFF implementation strategyFinancing modes – Risk Sharing Bank Facilities

15

Table of Contents

2.

3.

Implementation strategy

Implementation results

1. Introduction to RSFF

4. Awareness raising

5. SMEs/Mid Cap product development

16

RSFF updateSummary

Volumes: RSFF operations forecast for signature at the end of 2008 is EUR 1.3 billion.

Main sectors financed: renewable energy technologies, engineering and automotive, life science and ICT plus risk-sharing with intermediaries

Geographical spread: 14 countries at the end of 2008

Financing modes: corporate loans, project finance and risk sharing bank facilities

Extensive awareness raising

17

RSFF market update 2008

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

18

Geographical Spread

Austria

Bulgaria

Germany

Italy

Spain

Sw eden

Turkey

Hungary

Luxembourg

Italy

France

Israel

Germany

Netherlands

Spain

Sw edenTurkey

United Kingdom Denmark

BulgariaAustria

July 2008 End 2008

19

RSFF updateSectors

End 2008

“Bank Risk Sharing” represents loans provided by the EIB to intermediaries with a view to finance smaller loans (below EUR 7.5 million) to research-intensive companies.

20

Table of Contents

2.

3.

Implementation strategy

Implementation results

1. Introduction to RSFF

4. Awareness raising

5. SMEs/Mid Cap product development

21

RSFF updateAwareness raising campaign and dissemination (EIB + EC)

Over 40 seminars, workshops and meetings, and 17 conferences organised with the stakeholders of FP7 and with potential RSFF borrowers in 2008

In 2008 (to date), the RSFF presentations were made in: Belgium, Czech Republic, Denmark, Estonia, France, Finland, Germany, Hungary, Italy, Lithuania, Luxemburg, the Netherlands, Poland, Portugal, Slovenia, Spain, Sweden, Turkey, UK.

The website www.eib.org/rsff is being frequently updated. Portfolio updates and factsheets presenting example transactions will also be posted there.

EC RSFF sector continues to present RSFF to colleagues from DG RTD and other DGs of the research family, either in the form of dedicated presentations or within the framework of FP7 training sessions. The network of RSFF liaison officers is regularly updated on RSFF progress.

22

Table of Contents

2.

3.

Implementation strategy

Implementation results

1. Introduction to RSFF

4. Awareness raising

5. SMEs/Mid Cap product development

23

SMEs: Complementarities between CIP and FP7 (RSFF)

Risk Capital1 CIP Resources (SME)2 RSFF (SME / MidCap)3

Entrepreneur, friends, family

Business Angels

Seed/Early Stage VC Funds

Formal VC Funds

Bank Loans and Guarantees

Seed / Start-Up Phase Emerging Growth Phase Development Phase

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)

24

EIB

BorrowerEIB

For loans of EUR 7.5 million or more - direct involvement by the EIB

BorrowerIntermediary

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 benefitswith intermediaries (e.g. through partial guarantees)

Refinancing/ Guarantee

EIB and its partner banks (intermediaries)

25

SMEs/Mid Cap – Facility StructureApproved

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 Czek Republic; EUR 100m + EUR 60m) – SMEs, non RSFF

26

SMEs/Mid Cap – Facility Structure

Running negotiations

Project Name Target Amount (M EUR)

Bank Pekao BP SME 100

BPI SME Risk Sharing SFF SME 100

BA-CA Risk Sharing Austria RSFF SME/Midcap 75

Banca Intesa SME 100

SEB SME 100

27

RSFF

Thank you for your attention