Article 501a
Adjustment to own funds requirements for credit risk for exposures to entities that operate or finance physical structures or facilities, systems and networks that provide or support essential public services
1.
Own funds requirements for credit risk calculated in accordance with Title II of Part III shall be multiplied by a factor of 0,75, provided that the exposure complies with all the following criteria:
(a)
(b)
the exposure is to an entity which was created specifically to finance or operate physical structures or facilities, systems and networks that provide or support essential public services;
(c)
the source of repayment of the obligation is represented for not less than two thirds of its amount by the income generated by the assets being financed, rather than the independent capacity of a broader commercial enterprise, or by subsidies, grants or funding provided by one or more of the entities listed in points (b)(i) and (b)(ii) of paragraph 2;
(d)
the obligor can meet its financial obligations even under severely stressed conditions that are relevant for the risk of the project;
(e)
the cash flows that the obligor generates are predictable and cover all future loan repayments during the duration of the loan;
(f)
the re-financing risk of the exposure is low or adequately mitigated, taking into account any subsidies, grants or funding provided by one or more of the entities listed in points (b)(i) and (b)(ii) of paragraph 2;
(g)
the contractual arrangements provide lenders with a high degree of protection including the following:
(i)
where the revenues of the obligor are not funded by payments from a large number of users, the contractual arrangements shall include provisions that effectively protect lenders against losses resulting from the termination of the project by the party which agrees to purchase the goods or services provided by the obligor;
(ii)
the obligor has sufficient reserve funds fully funded in cash or other financial arrangements with highly rated guarantors to cover the contingency funding and working capital requirements over the lifetime of the assets referred to in point (b) of this paragraph;
(iii)
the lenders have a substantial degree of control over the assets and the income generated by the obligor;
(iv)
the lenders have the benefit of security to the extent permitted by applicable law in assets and contracts critical to the infrastructure business or have alternative mechanisms in place to secure their position;
(v)
equity is pledged to lenders such that they are able to take control of the entity upon default;
(vi)
the use of net operating cash flows after mandatory payments from the project for purposes other than servicing debt obligations is restricted;
(vii)
there are contractual restrictions on the ability of the obligor to perform activities that may be detrimental to lenders, including the restriction that new debt cannot be issued without the consent of existing debt providers;
(h)
the obligation is senior to all other claims other than statutory claims and claims from derivatives counterparties;
(i)
where the obligor is in the construction phase, the following criteria shall be fulfilled by the equity investor, or where there is more than one equity investor, the following criteria shall be fulfilled by a group of equity investors as a whole:
(i)
the equity investors have a history of successfully overseeing infrastructure projects, the financial strength and the relevant expertise;
(ii)
the equity investors have a low risk of default, or there is a low risk of material losses for the obligor as a result of their default;
(iii)
there are adequate mechanisms in place to align the interest of the equity investors with the interests of lenders;
(j)
the obligor has adequate safeguards to ensure completion of the project according to the agreed specification, budget or completion date; including strong completion guarantees or the involvement of an experienced constructor and adequate contract provisions for liquidated damages;
(k)
where operating risks are material, they are properly managed;
(l)
the obligor uses tested technology and design;
(m)
all necessary permits and authorisations have been obtained;
(n)
the obligor uses derivatives only for risk-mitigation purposes;
(o)
the obligor has carried out an assessment whether the assets being financed contribute to the following environmental objectives:
(i)
climate change mitigation;
(ii)
climate change adaptation;
(iii)
sustainable use and protection of water and marine resources;
(iv)
transition to a circular economy, waste prevention and recycling;
(v)
pollution prevention and control;
(vi)
protection of healthy ecosystems.
2.
For the purposes of point (e) of paragraph 1, the cash flows generated shall not be considered predictable unless a substantial part of the revenues satisfies the following conditions:
(a)
one of the following criteria is met:
(i)
the revenues are availability-based;
(ii)
the revenues are subject to a rate-of-return regulation;
(iii)
the revenues are subject to a take-or-pay contract;
(iv)
the level of output or the usage and the price shall independently meet one of the following criteria:
—
it is regulated,
—
it is contractually fixed,
—
it is sufficiently predictable as a result of low demand risk;
(b)
where the revenues of the obligor are not funded by payments from a large number of users, the party which agrees to purchase the goods or services provided by the obligor shall be one of the following:
(i)
a central bank, a central government, a regional government or a local authority, provided that they are assigned a risk weight of 0 % in accordance with Articles 114 and 115 or are assigned an ECAI rating with a credit quality step of at least 3;
(ii)
a public sector entity, provided that it is assigned a risk weight of 20 % or below in accordance with Article 116 or is assigned an ECAI rating with a credit quality step of at least 3;
(iii)
a multilateral development bank referred to in Article 117(2);
(iv)
an international organisation referred to in Article 118;
(v)
a corporate entity which has been assigned an ECAI rating with a credit quality step of at least 3;
(vi)
an entity that is replaceable without a significant change in the level and timing of revenues.
3.
Institutions shall report to competent authorities every six months on the total amount of exposures to infrastructure project entities calculated in accordance with paragraph 1 of this Article.
4.
The Commission shall, by 28 June 2022 report on the impact of the own funds requirements laid down in this Regulation on lending to infrastructure project entities and shall submit that report to the European Parliament and to the Council, together with a legislative proposal, if appropriate.
5.
For the purposes of paragraph 4, EBA shall report on the following to the Commission:
(a)
an analysis of the evolution of the trends and conditions in markets for infrastructure lending and project finance over the period referred to in paragraph 4;
(b)
an analysis of the effective riskiness of entities referred to in point (b) of paragraph 1 over a full economic cycle;
(c)
the consistency of own funds requirements laid down in this Regulation with the outcomes of the analysis under points (a) and (b) of this paragraph.