The 125km 2x2-lane A28 toll road connects Rouen and Alençon in Northern France. It has been in operation since 2006 and construction was originally financed by its private sector concessionaire in 2002 via three tranches of monoline-wrapped CPI-linked notes maturing in 2017, 2027 and 2032.

Mirova, a 26% shareholder in the road's concession-holding joint venture ALIS, proposed refinancing the project's existing debt in September 2014 in order to take advantage of favourable market conditions. One of the debt tranches was also approaching its 2017 maturity, and the sponsor wished to create a simpler structure better suited to the road's long-term concession which expires in 2067.

Though the transaction attracted significant investor interest it took two years to complete, reaching financial close last month.

No early redemption clause

The process was complicated by a financing structure that did not foresee voluntary early redemption and existing notes that were not actively traded on the secondary market. “There were questions about whether you could refinance the company, as the initial transaction that closed in 2002 wasn’t originally meant to be refinanced,” explained HSBC’s Christoph Bruguier.

In order to refinance, the sponsors had to launch a bid offer to existing note holders, 75% of which needed to consent to enable the insertion of a call option allowing for redemption of 100% of the nominal debt. This meant it was necessary to identify and enter into discussion with most of the previous bond holders.

It was also important to strike a balance between valuing the notes in a way that satisfied investors, without paying an excessive tender premium, despite the absence of a market price for the bonds. In the end, €765 million was repaid for the nominal amount of €550 million.

And negotiations with the monoline insurer to terminate the wrap were also complex.

All of this resulted in an unwrapped direct bond issuance of one tranche worth €857.5 million ($961 million) maturing in 2046 with a fixed interest rate of 2.485%, and an index-linked tranche worth €42.5 million reaching maturity in 2032. Which compares to rates of 3.99%, 4.25%, and 4.3% on the three tranches of the previous financing structure.

The deal is now the largest unwrapped bond issuance by a single-asset motorway concessionaire in France. “I am very proud that we achieved something for the stability of the company,” said ALIS chief executive Arnaud Hary, highlighting the complexity of the process, as well as the structuring and execution of the deal.

And although it comes amid a spate of recent and expected road refinancings in France, including this month’s A41, it is unique in refinancing via debt capital markets. “The refinancing of the mini-perm structures [put in place shortly after the subprime mortgage crisis] in France was done through the bank route. Here we are tapping the bond market. So this is also a landmark deal because we are saying the capital market is back to financing traffic risk transactions,” explained Mirova’s Gwénola Chambon.

And investors seem to have taken an interest in the A28. “The concession has demonstrated efficiency and maturity, so lots of bond holders were eager to invest,” added Chambon.  According to sources, three of the new bond holders are understood to be AllianzGI, MEAG and Macquarie, although these firms have not confirmed this.

Other institutional investors involved in the deal were from a number of European countries, including 37.2% from Germany, 27.3% from France, 7.7% from Belgium, 5.7% from the UK, 5.5% from Ireland, and 5.5% Luxembourg, according to information provided by HSBC, which along with Deutsche Bank was bond arranger, bookrunner and financial adviser to the sponsor.

Rating uplift

One of the factors that contributed to investor interest was a Baa2 investment grade rating from ratings agency Moodys. The new issue’s rating benefits from 1.5 notches of rating uplift, reflecting a number of features of the debt structure, explained Moody’s analyst Xavier Lopez del Rincon Troussel.

Positive features include amortising debt, the existence of reserves, restrictions on additional indebtedness, seniority of the bonds in relation to any additional debt that might be taken on, as well as reporting and review requirements. The rating also reflects the road’s 10-year operating history, its importance as a trade route, limited capex expectations, and the ability to increase tolls in real terms, he said.

Mirova is joined in ALIS by PGGM (33%), Aberdeen Infrastructure (13.16%), Egis (8%), Sanef (11.67%), and SAPN (8%).

White & Case advised the bond arrangers, while Clifford Chance was adviser to the sponsors.

(*Photograph provided by ALIS and BN’T Communication)