Less than a year on from closing the financing of its $412 million Paris-Sorbonne university project, Mubadala has reached financial close on its $1 billion Zayed University PPP in Abu Dhabi – a first for the social infrastructure sector in the region in terms of size.

Paris-Sorbonne's debt had a 20-year tenor, with pricing starting at 200bp over Libor. With the effects of the financial crisis having run their course, the $1 billion Zayed financing came in with a 10-year hard mini-perm, pricing starting at around 300bp, and an innovative model comprising dual-currency senior debt, mezzanine debt and an Islamic facility.

The funding structure is 83% senior debt, 7% mezzanine and 10% equity. The debt features 11 local and international lenders and breaks down into $370 million of international debt and AED2.5 billion ($670 million) of local debt. Within that debt is a $359 million senior tranche, a $437 million-equivalent senior dirham tranche, a $77 million-equivalent dirham mezzanine tranche and a $142 million-equivalent dirham senior commodity murabaha tranche.

Calyon, Natixis, Royal Bank of Scotland, Societe Generale, BIIS and Bank of Tokyo Mitsubishi UFJ provided the senior dollar debt; Abu Dhabi Commercial Bank, First Gulf Bank, National Arab Bank and Union National Bank provided the senior dirham debt; FGB provided the mezzanine debt; and Al Hilal provided the murabaha debt. FGB came out with the largest exposure to the deal, followed by Al Hilal.

Pricing for the senior dollar debt starts at 290bp over Libor during construction, rising to 325bp from year four, 350bp from year five and 395bp from years six to 10, with a 65% balloon at year 10. The senior dirham debt's margin has the same pricing over Eibor across the tenor, as does the dirham-denominated commodity murabaha debt. Pricing for the mezzanine debt starts at 325bp over Libor during construction, rising to 350bp at year four, 400bp by year six and 425bp by year 10. The minimum DSCR is around 1.25x.

Lenders were asked to take tickets of between $35 million and $150 million. Upfront fees were 200bp for the smallest commitment level of $35 million and 280bp for commitments above $120 million. As the deal was oversubscribed by around 7% across the tranches, banks were scaled back on a pro rata basis.

Mubadala sounded the market out on the challenges of raising $1 billion post-Lehman in October 2008, before the close of Paris-Sorbonne. GDF Suez and GIC's $1.6 billion Al Dur IWPP was in the market at that time. It had been structured in response to the financial crisis, and featured an eight-year hard mini-perm and Islamic facilities.

Mubadala chose a hard mini-perm, as had been seen to be working in the case of Al Dur, in order to ensure the broadest lending base possible. But Zayed faced challenges that Al Dur did not. For one, it was a social infrastructure deal, not an IWPP, which was more of a safe, trusted asset class as far as lenders were concerned. For another, Al Dur had the benefit of foreign sponsors, whereas Zayed's sponsor is local. These two factors meant that appetite from both foreign and local lenders had to be carefully cultivated.

The Zayed financing could have got away in late 2008 or early 2009, but Paris-Sorbonne had to sign first. Mubadala then had to focus on the refinancing of its $4.3 billion Dolphin Energy deal, which got away in the summer on a bank-bond basis. In the end, Zayed reached the line around 14 months in the making – a long negotiation further complicated by the difficulty of sourcing mezzanine debt and matching the long-term hedging requirements of the project company given the large portion of locally raised debt.

The 10-year hard mini-perm structure went out to banks in March 2009. A soft mini-perm had also been an option, but Mubadala decided to put as little refi risk on the banks as possible and plans to refinance the deal on the bond markets around year four, post-construction.

The Zayed project involves the design and construction of a new university campus on a plot of approximately 75 hectares and will provide educational facilities for 6,000 students as well as related faculty and support staff. The new campus will be located in the New Capital District, near Abu Dhabi International Airport.

The deal is an availability-based concession, although payments to the FM providers, which will be sub-contracted by Mubadala, are independent to the payments to the project company. The grantor, and hence the payer of the availability payments post-construction, is the local education authority rather than the government.

Mubadala has a strong pipeline of transactions going forward, and intends to carry on with a focus on broadening the range of debt instruments it uses, in light of conditions in the long-term money market. The next Mubadala deals to watch will be the Tawam Hospital and Strata Composites projects, which will feature some of the innovative structural elements seen in Zayed. If the movement from Paris-Sorbonne to Zayed, which was essentially a step from one deal in a turbulent debt market to one three times the size in a worsening market, is anything to go by, these deals will come to the table finely tuned to market conditions.

Zayed University PPP
Status: Financial close 24 November 2009.
Size: $1.04 billion.
Location: Abu Dhabi.
Description: Development of a new university campus.
Sponsor: Mubadala.
Concession grantor: ADEC.
Financial adviser to Mubadala: Calyon.
Joint lead arrangers, senior dollar tranche: Calyon, Natixis, RBS, SG, BIIS and BTMU.
Joint lead arrangers, senior dirham tranche: ADCB, FGB, NAB and UNB.
Lead arranger, mezzanine dirham tranche: First Gulf Bank.
Lead arranger, murabaha commodity tranche: Al Hilal.
Lender legal adviser: White & Case.
Sponsor legal adviser: Allen & Overy.
Technical adviser to the lender: Gleeds.