An innovative securitisation combined with operational and management change
Angel Trains was the largest of three UK passenger rolling stock leasing companies created in the privatisation of the UK railways. At the time of Terra Firma’s acquisition in 1996, the business owned around 3,600 electric and diesel railway engines and carriages, making it the largest passenger fleet in the UK.
The organisation suffered from inefficiencies as a result of having been under public sector ownership, and operating expenses were unnecessarily high. Angel Trains’ operational and financial performance was transformed by introducing a rigorous commercial approach to cost control, maintenance regimes and marketing.
The business was repositioned as a customer-focused and commercial enterprise with an emphasis on value-added refurbishment and new rolling stock in order to enhance revenues.
A substantial portion of the future lease payments was government-guaranteed and was immediately securitised to reduce the required investment. Due to the importance of the rail network, the remaining portion of the lease payments was identified as extremely reliable too and a second securitisation soon followed, thereby lowering the business’s cost of capital. This was the first time that securitisation had been used to finance (as opposed to subsequently re-finance) an acquisition in the UK.
Terra Firma’s investment in Angel Trains has been fully realised, having been repaid within three months from the proceeds of the second securitisation. Terra Firma sold its equity position to a financial buyer in December 1997.