The French road sector has seen a flurry of activity over recent months, and more is set to come.

A slew of French motorways reached financial close just before the economic crisis of 2008-2009, many using mini-perm debt structures, and these projects are now coming up for refinancing.

The highways being refinanced are typically toll roads. Due to the global economic downturn traffic volumes, and consequently revenues, were well below original forecasts for these roads — particularly during and shortly after the crisis.

Since then, allowing for differences related to varying road-use patterns and locations of individual motorways, volumes have tended to improve, and with a few years of operating experience, many are now in a better position to produce more accurate traffic forecasts and to refinance their debt.

Refinancings completed

In August, ALIS refinanced the debt on the A28 toll road that connects Rouen and Alençon in Northern France. The financing for this project was originally put in place in 2006 via monoline-wrapped CPI-linked notes. One of three tranches of these bonds was maturing in 2017, and the sponsors took the opportunity to refinance the entirety of the debt via unwrapped direct bond issuance. But the transaction faced a number of challenges.

Firstly, it was necessary to identify and negotiate with existing bond holders to gain consent from 75% of them to enable redemption of the debt. Then negotiations were conducted with the monoline insurer. And finally the ratings uplift received from Moody’s produced an investment-grade Baa2 rating that helped attract investors to the new notes.

The following month, ADELAC completed a refinancing of the A41 Nord toll road in the Rhone-Alps region, using a traditional bank debt structure that brought together the following lenders and debt investors: Crédit Agricole, Société Générale, BNP Paribas, SCOR, La Banque Postale Asset Management, NN Investment Partners, providing debt of around €750 million ($801 million). Although this motorway originally saw lower traffic than expected, its function as a connection for commuters who live in France and work in Switzerland means traffic volumes have improved over the years, which has boosted lender confidence for the refinancing.

Transactions to come

Other refinancings are expected over the next few months. And while some banking sources still say they would be reluctant to take on French traffic risk, many local financial players have demonstrated confidence in the sector. 

Among deals expected to come is Vinci subsidiary Arcour’s A19 toll road, which connects Artenay and Courtenay in central France. Société Générale is thought to be advising on the refinancing of the road’s debt, which was set up in 2008, following initial financing provided by the Vinci Group through an intra-group loan.

Although the €200 million loan provided by the EIB in 2008 has a maturity of 37 years and may be expensive to refinance, the remaining €425 million loan provided by BBVA, Calyon, Fortis, ING, and Royal Bank of Scotland with a 10-year tenor is expected to be easier to replace.

Another road that might be refinanced over coming months is the A65, which opened in 2010 and connects Langon to Pau in south-western France. However, with the highway crossing sparsely populated parts of the country, traffic risk may remain an issue, although a few years of operating history does make traffic forecasting more reliable.

And a refinancing is also possible for the A355 Strasbourg western bypass PPP. About a year ago, the project was awarded to Vinci, three years after Vinci won but then lost the concession because of traffic risk concerns, environmental issues, and funding costs which meant it was underfunded. The project had also been tendered unsuccessfully in 2007 and 2009. Vinci eventually decided to fund the project itself without public subsidies, but sources believe a project finance deal may now be on the cards.  

And other transactions, including a handful of road widening projects, as well as the greenfield €1.2 billion A45 Lyon-St Etienne motorway, which had been held up by public funding limitations, but was revived as a result of this year’s administrative merging of the Auvergne and Rhône-Alpes region, and will now be build by Vinci, are also in the pipeline or underway.

Bank debt or bonds

For all expected road refinancings and others that may materialise, new debt will likely take the form of traditional bank loans rather than bond issues, sources believe. With these motorways typically being less than 10 years old, any refinancing is unlikely to be final. This means that bank debt would offer greater flexibility for additional refinancings further ahead. However, combinations such as longer-term private placements with shorter-term bank debt may also be possible.

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