Network Rail said the programme would comprise two or three large issues with maturities of between 15 and 45 years. The bonds will be directly and unconditionally guaranteed by a financial indemnity from the UK government, it said.

"This will be the first time any issuer other than the UK DMO (Debt Management Office) has adopted a programme approach to sterling index-linked bond issuance," the rail infrastructure operator said.

Fred Maroudas, director of funding at Network Rail, said investors had shown substantial interest in a programme of large index-linked issues with a government guarantee.

"We expect to raise a total of 10 billion pounds in the capital markets over the next two years to finance new investment in the railway and to refinance our short-term debt. Much of this could be index-linked if investor demand remains strong," he said.

Network Rail has appointed eight market makers for the programme: Barclays Capital, Citigropu, Dresdner Kleinwort, HSBC, Merrill Lynch, Royal Bank of Canada, Royal Bank of Scotland and UBS.

Network Rail's debt issuance programme is rated triple-A by Moody's Investors Service, Standard & Poor's and Fitch Ratings.

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Network Rail begins bond issue in bid to raise £10bn

Transport Briefing: 26/04/07  

Network Rail has announced a new RPI index-linked bond issue programme desgned to raise £10bn from the capital markets during the next two years to fund investment in Britain’s railways.

The not for profit company said the bonds would be directly and unconditionally guaranteed by a financial indemnity from the UK government and would be issued under its debt issuance programme, rated AAA, Aaa and AAA.

A spokesman said the infraco said it planned to increase the proportion of index-linked issuance in its overall debt mix. He added that Network Rail had put together a group of eight market makers, all of which were also index-linked gilt-edged market makers and would be trading the bonds off their gilts desks. They include Barclays Capital, Citigroup, Dresdner Kleinwort, HSBC Holdings, Merrill Lynch, Royal Bank of Canada, Royal Bank of Scotland and UBS.

Network Rail funding director Fred Maroudas said: “This initiative follows an extensive consultation exercise with investors, who have indicated substantial interest in a new programme of benchmark size index-linked issues which carry a government guarantee. We expect to raise a total of £10bn in the capital markets over the next two years to finance new investment in the railway and to refinance our short-term debt. Much of this could be index-linked if investor demand remains strong.”

He added: “Index-linked debt is a prudent, cost-effective way of financing long-term public utilities like the railway. It provides value for money to the taxpayer and fare-payer while giving investors such as pension funds the inflation-linked assets they need to match their future liabilities.”

At the end of September last year, Network Rail’s index-linked issuance as a proportion of total debt was 5%. The company’s net debt is forecast to rise to £22bn in March 2009. It has a total funding requirement, including refinancing of maturing debt, of about £10bn to March 2009, the end of the current regulatory period.

Network Rail said it would launch the first tranche of the programme in the week starting 30 April, subject to market conditions, in benchmark size with a maturity date of November 2037. The company expects to issue at regular intervals, and give advance guidance to the market on forthcoming supply. The programme is expected to comprise two or three large, liquid benchmarks with maturities of between 15 and 45 years.