An innovative financing model has the Main-Wesser Network rocking and rolling in Germany

This is a story about how PwC UK and PwC German helped Rock Rail and abrdn Core Infrastructure Rail develop an innovative financing model to deliver their first European investment for new electric trains in Germany.

Having previously partnered on four successful project in the UK, Rock Rail and abrdn have paired together again to launch their first joint European investment for the financing of new electric trains for the Main- Weser Network in Germany. Rock Rail and abrdn were keen to enter the German market because there is a strong transparent pipeline of opportunities supported by favourable sector headwinds. These include a strong desire for modal shift from automobile to public transport, decarbonisation of life expired trains and which supports the wider decarbonisation agenda.

The new fleet comprises of 17 new high-capacity Coradia Stream electric multiple units, totalling 72 vehicles. abrdn and Rock Rail will procure the trains from Alstom and lease them to Deutsche Bahn’s regional rail subsidiary, DB Regio AG, on an initial 14- year lease.

Rock Rail provides innovative financing solutions and asset management services for rolling stock and other rail infrastructure.

As a global investment company, abrdn seeks to deploy capital capital to support and drive social and environmental sustainability.

PwC UK and PwC Germany worked as one team to provide lead financial advisory and tax services to Rock Rail and abrdn. This was an innovative deal in many respects:

• The financing structure does not benefit from a re-lease guarantee or comparable support mechanism from the procuring authorities, with the lender and lessors retaining redeployment risk beyond the initial lease period. This structure is relatively uncommon in German passenger rolling stock market.

• The new rolling stock is expected to have an economic useful life of at least 35 years, which is significantly in excess of the 14-year initial lease period but long term institutional financing was still obtained over the asset life.

We worked extensively with sponsors, lenders and technical advisors to demonstrate the ‘core’ nature and ‘stickiness’ of the fleet as mitigating factors for re-leasing risk. Qualitative factors included the quality of the assets and strength of Alstom as manufacturer, consistency of the fleet with the route operating and maintenance strategies, and the matching of key fleet characteristics to the network.

The PwC teams worked seamlessly to deliver the transaction, combining our strong market expertise and client relationships as well as experience and networks in the German market and working with Tax colleagues in both the UK and Germany to provide tax structuring advice for the transaction.

This is great momentum for both clients to expand out of the UK market. This deal has given Rock Rail and abrdn a deals platform to enter into other European markets.

The additional benefit of this deal is that it gives the public authority a lot more flexibility on how they procure and operate their rolling stock in the medium to long term and will encourage others to look differently at public assets with value potential.

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