The N17/N18 Gort-Tuam was an impressive deal when it closed in April 2014. It was the second transport PPP to complete in Ireland after the financial crisis, and was much larger than its predecessor N11/N7. Despite coming at a time when the country was still emerging from its sovereign debt crisis and markets weren't receptive to long-dated Irish risk, the N17/N18 project went ahead. However, this meant pricing on its debt was steep. 

Two years later, with margins on debt for infrastructure PPPs across Europe significantly tighter and appetite for Irish debt--particularly from institutional lenders—stronger, the sponsors have signed a refinancing with an attractive cut in pricing.

In 2014, the Direct Route consortium—a group that comprises Marguerite Fund, John Sisk & Sons, Roadbridge, Lagan Construction, HICL Infrastructure and Strabag—achieved average debt pricing between 350bp and 400bp over Euribor. With the refinancing, this has now come down to a level around 150bp over Euribor, with a fixed rate over the duration of the term for the bulk of the debt.

But not all of the original lenders were willing to accept the new pricing. The European Investment Bank, which had originally provided a loan of €144 million, is thought to have been unwilling to tighten its margins to the same extent as the project's commercial lenders. As a result, the bank was prepaid with new financing received under private placement to Aviva, MEAG and Babson Capital.

Meanwhile, existing commercial lenders Natixis, Societe Generale and Bank of Ireland have all remained on the refinancing. Total debt provided under the new deal amounts to about €398 million ($445 million), including the €150 million tranche of registered notes.

Other refinancings

The N17/N18 refinancing comes amid similar deals involving other European infrastructure PPPs, such as the transaction signed earlier this month for the Dutch A1/A6 road PPP, a project that originally reached financial close soon after the crisis was previously also lumbered with wide margins. And more refinancings may follow, one source indicated, with the N11/N7 a possible candidate, although the smaller size of this deal makes the need to improve lending terms less pressing, he suggested. 

But achieving an attractive refinancing is not easy, as many projects may face the hurdle of swap breakage costs so high they undermine the savings to be reaped from refinancing.

Meanwhile, like the Dutch A1/A6 project, the N17/N18 Gort-Tuam PPP was lucky to improve its debt pricing with the motorway still under construction. This was possible because construction of N17/N18 is at an advanced stage, one source explained. When discussions surrounding the refinancing started earlier this year, half of the work on the road was already complete, placing it 20% ahead of schedule and beyond the earthwork stage that faces greatest threat of delays. And with no large or complicated structures required to traverse the stretch of farmland bypassing Clarinbridge, Claregalway and Tuam, the project is expected to be complete in September next year.

Under construction

Looking ahead, the fact that the road is not yet complete means there may also be scope for another refinancing once construction ends, although one source indicated the pricing wouldn’t be much better as there is little risk premium related to possible construction delays on the debt margin. 

In any case, if the current deal remains in place, the sponsors will benefit from a five-month extension to the original amortising tenor. But the extension couldn’t be longer because the procuring authority Transport Infrastructure Ireland wanted to ensure that cash flows during the last two years would be preserved to avoid impacting road quality towards the end of the concession.

The sponsors of N17/N18 are responsible for designing, building, financing and maintaining the 57km four-lane motorway that replaces the existing single carriageway roads.

Availability payments will be made over a 25-year operational period, worth a total of €550 million.