The ISTP2 deal is a story of a successful evolution against adversity, beginning as a typical term loan for which sponsors had responsibility, through commercial close, to the project company – with a government partner – taking on responsibility for securing a local bank equity bridge and eventually a soft mini-perm.

To keep to the agreed timetable the sponsors, Veolia, Besix and ADWEA, began construction after commercial close in December 2008, when raising long-term debt would have been impossible. An $86 million corporate bridging loan was provided by Calyon, Natixis and NBAD, with recourse to Veolia and Besix, to fund the start of construction.

The long-term deal, which took out the bridge, was signed on 17 September 2009 by a club of eight banks. Unlike the $410 million ISTP1 deal, which was underwritten by Abu Dhabi Commercial Bank in June 2008, the long-term ISTP2 debt was arranged entirely by international banks, with the exception of National Bank of Abu Dhabi.

The $404 million debt breaks down into a $384 million 20-year term loan and a $20 million 20-year standby facility. BTMU and Natixis were joint coordinating and documentation banks, SMBC was facility agent, and BNP Paribas advised the sponsors. Pricing is believed to start at 300bp over Libor and rises to 400bp.

The deal is structured to encourage the sponsors to refinance by year six. During years six and seven, 70% of the excess cash is swept, during year eight there is a 90% sweep and from year nine onwards there is a 100% sweep.

Three local banks are also providing a dirham-denominated, $106.3 million two-year equity bridge. National Bank of Abu Dhabi is bridge agent, as well as onshore account bank and onshore security trustee for the senior facilities. Assuming the bridge comprises all the equity, the deal has a debt-equity ratio of around 80/20.

The 25-year build-operate-own and transfer project involves the construction, operation and maintenance of two sewage treatment plants, Allahamah and Whatba 2, with a combined capacity of 430,000 m3 per day and a 25-year sewage treatment agreement with offtaker ADSSC. Revenues are predicated on an availability regime.

The contractual structure mirrors ISTP1. The project documentation is based on ADWEA's IWPP template but with adjustments in the termination provisions to account for the differences in the BOO and BOOT models. Under the ISTP contracts the project company walks away or repudiates the contract, the lenders are fully repaid in all events of termination.

On termination, the offtaker is obliged to buy back the asset based on a formula that sees the lenders repaid and covers all swap breakage costs, whereas in the IWPP template this is only an option. During the construction period, the termination amount due to the lenders from ADSSC equals the amount of debt drawn down.

While ADSSC was a direct subsidiary of ADWEA during most of the deal, in July it became a standalone entity reporting directly into the general council of Abu Dhabi. Although ADSSC's availability payments are not guaranteed by the government, its obligation to purchase the plants in termination is.

ISTP2
Status: Financial close 17 September 2009
Description: Financing for Abu Dhabi's second independent sewage treatment project
Sponsors: ADWEA (60%); Veolia (20%); BESIX (20%)
Mandated lead arrangers: BNP Paribas; Calyon; ING; Mizuho; National Bank of Abu Dhabi; Natixis; SMBC; Bank of Tokyo-Mitsubishi
Equity bridge arrangers: National Bank of Abu Dhabi; First Gulf Bank; Abu Dhabi Commercial Bank
Financial adviser to sponsors: BNP Paribas
Legal adviser to sponsors: Dewey & LeBoeuf; Chadbourne & Parke
Legal adviser to lenders: Allen & Overy
EPC contractors: Veolia; BESIX