SMBC Leasing and Equitix

Technical Advisor for Financing of Rolling Stock for Wales and Borders

During 2016 and 2017 Transport for Wales (TfW) tendered for a new kind of Operator and Development Partner (ODP) to implement exciting new infrastructure and service improvements across the Welsh franchise over a 15-year term. The detailed TfW tender specification provided an opportunity for bidders to renew the majority of the rolling stock fleet as a solution to some quite challenging operational and service quality requirements. The Wales and Borders franchise is heavily reliant upon self-power rolling stock and, despite current developments, including use of hydrogen and battery as energy storage media, proven self-power rolling stock solutions currently depend upon diesel technology, competition for which is limited to two main supplier products. In February 2018 uncertainty over the future treatment of diesel rolling stock by UK government was heightened with an aspiration to remove diesel-only traction from the UK network by 2040 being announced by former transport minister Jo Johnson. Within a very competitive market and challenging funding environment, SMBC Leasing (UK) Limited and Equitix Limited (SMBC-EQ) together succeeded in securing the financing of an £860m fleet replacement programme, part of the new 15-year Wales & Borders ODP Grant Agreement awarded to Keolis Amey Operations Limited (KA) by TfW in 2018. The deal involved procurement of 148 units (421 vehicles) across four different fleet types from two manufacturers and due to enter service from 2021.


The TfW specification demanded highly creative approaches to meeting the challenging operational and service quality requirements, including partial electrification (of the Core Valley Lines – CVL), removal of diesel operations on the CVL altogether by 2025 and an extensive on-train facilities / deadline matrix, all to be delivered within a tightly constrained expenditure limit / revenue assumption. Across the industry, some wholesale replacements of rolling stock as part of other franchise renewals such as Greater Anglia have raised the scrutiny on re-leasing and residual value assumptions for rolling stock. A core challenge for SMBC-EQ was to navigate the changing terrain for rolling stock investments and discern accurately the true drivers for rolling stock re-leasing and renewal behaviours in order to assess the Wales and Borders investments safely for the purposes of their own equity as well as securing lender support, for each of four different rolling stock types:

Construcciones y Auxiliar de Ferrocarriles S.A. (CAF)

  • Diesel multiple units (DMUs) (180 vehicles): 51 x 2-car and 26 x 3-car.

Stadler Rail Valencia, S.A.U.

  • Metro tram-trains (108 vehicles): 36 x 3-car (semi-articulated).

Stadler Bussnang AG

  • Tri-modes, 25 kV OHL / battery / diesel power (89 vehicles): 17 x 4-car, 7 x 3-car (articulated).
  • Diesel-electric multiple units (DEMUs) (44 vehicles): 11 x 4-car (articulated).

Wales & Borders incorporates two parts; Core Valley Lines (CVL) which are the local lines immediately to the north of Cardiff, and the Wales & Cross Borders rail lines (“non-CVL”), which are the remainder of the railway lines throughout Wales and across the border to England at several points. The CVL routes will only be operated by the Tri-mode and Metro tram-train fleets and TfW has provided a 25-year usage undertaking for these fleets, reflecting the scale of the CVL infrastructure works upon which these fleets depend. The DMU and DEMU fleets operating on the non-CVL will not benefit from any usage undertaking but will be exposed to any failure of the ODP as a result of the CVL upgrade programmes not being fully executed, as well as to their own, normal re-leasing risk at the end of the ODP term.


SMBC-EQ opted to leverage the market trend towards gaining manufacturer involvement for the whole of the asset life and to waive the requirement for a maintenance reserve, instead proposing a whole-of-life maintenance and overhaul programme. SMBC-EQ worked hard to secure direct whole-life agreements with each manufacturer, in order to assist re-leasing with updated manufacturer / maintainer services and to protect the residual value, through manufacturer-driven updating and upgrading solutions. Future migration to hybrid operation, if necessary, to mitigate the risk of an eventual prohibition of diesel-only rolling stock around 2040 has been factored into the solution and SMBC-EQ, through its advisors, developed a comprehensive understanding of the operating regime, to which the Wales and Borders operator is subject, and the elegant rolling stock strategy derived by KA, in order to translate the stickiness and wider latent utility of the new rolling stock for the benefit of lender participation. In order to probe and interpret these factors and determine the potential approaches most appropriate to navigating the complex requirements SMBC-EQ retained IPEX Consulting Limited (IPEX) as its Technical Advisor, to advise throughout the project as part of expert negotiations with KA, the two manufacturers and the lenders. SMBC-EQ retained SNC-Lavalin Limited as Technical Advisor to the Lenders.


SMBC and Equitix gained approval successfully from their own separate credit committees and a broad base of Lenders, closing the four individual deals on a four-part £860m replacement rolling stock fleet for the Wales & Borders franchise in early 2019. In addition to securing sign-off for all major contracts including MSA (Manufacture and Supply Agreement), TSA (Train Services Agreement) and Lease, SMBC-EQ also secured Long-Term Maintenance Agreements (LTMAs) with each manufacturer entity. These agreements achieve a truly whole-life asset management approach that sustains competitiveness for the fleets and provides a high level of long-term investment security beyond the current lease and usage undertaking terms. This ground-breaking approach, secured despite difficult and competitive market conditions, has challenged traditional thinking in UK rolling stock leasing and IPEX is delighted to have been able to provide the necessary arguments and justifications, commercial and technical analysis, support and diligence to enable the investment to proceed. SMBC Leasing (UK) Limited and Equitix Limited have again stood out as industry leaders in this domain, providing innovative and unique financing solutions that offer many new benefits to the operator and other stakeholders.