SH130: Lone star in Lone Star State

The concession of sections five and six of the State Highway 130 in Texas was a long time in the making, and maintained hope in the state's ambitious PPP programme. The road was the first of Texas's comprehensive development agreements (CDA) to be awarded, in June 2006, and both the sponsor and the CDA programme faced some significant challenges in the state in the interim.

The Cintra-Zachry consortium closed the financing for the $1.36 billion concession 21 months after the Texas Department of Transportation (TxDOT) awarded it. The financing involves a three-tranche bank loan, arranged by Santander as administrative agent, with Fortis as documentation agent, and Banco Espirito Santo, CaixaBI and Caja Madrid also underwriting the debt. In addition, it includes a significant TIFIA tranche.

The concession runs for 50 years, starting at the end of a five-year construction phase, and completes the route between Austin and San Antonio. The project is the first PPP deal to close under Texas' comprehensive development agreement (CDA) programme, which has been bedevilled by political dissent, and a partial moratorium on private concessions of toll roads.

Cintra holds a 65% stake in the concession, while Zachry holds 35%, for a total equity contribution of $197 million. The sponsors have also provided contingent equity commitments of $65 million; $30 million of which would provide additional liquidity during construction, and $35 million for additional right-of-way acquisition costs.

The $685.8 million term loan has a 30-year maturity, and features a grace period that covers the construction phase, plus two more years during ramp-up. The debt also includes a liquidity facility of $35 million, to be used during this ramp-up phase, and was sized to meet interest and debt-service coverage before the project's revenues are fully established. The liquidity facility is available for a 10-year period, and also has a 30-year maturity. The project must meet a minimum debt service coverage ratio of 1.25x to remain in compliance its covenants.

All of the bank debt is priced at 130bp over Libor initially, rising to 170bp over the debt's life. Though the financing negotiations began before the renewed bout of turbulence in the credit markets, the pricing was only determined a few weeks before close. The debt amortises on fixed schedule, and also features an additional cash sweep mechanism which, under the base case, would mean that the debt will be repaid within 20 years.

The bank financing also includes a $29.1 million letter of credit facility, which replaces an earlier LC that the sponsors provided for TxDOT's benefit, and covers a potential tax payment to TxDOT that could fall due during the first two years of the concession. Though much of the $963.8 million construction cost is exempt from taxes, there are a number of elements of the work which may be subject to some tax. Should it be needed, the LC would be subject to the same pricing as the rest of the bank debt. The interest rate on the debt is hedged 100% during construction and 98% during operation.

The TIFIA loan includes a $430 million principal loan and $45.5 million in capitalised interest during construction. The interest rate on the TIFIA portion is 4.46%, based on a pricing formula of 1bp over the State & Local Government Securities benchmark. The TIFIA portion of the funding is subordinate to the bank debt, and has a 35-year maturity, with repayments beginning after construction is substantially complete. In the first five years after construction, the sponsor can defer the TIFIA interest and principal repayments, but after year six, interest payments become mandatory.

The project had also, originally, been approved for private activity bonds (PABs) under the federal government's SEP-15 provision, which allowed PABs to be allocated to a project before it was awarded. However, the concessionaire decided against using the PABs in the final financing, as the sponsor believed the TIFIA and bank tranches to be sufficient for its purposes, and to avoid any further delays in the already protracted timeline to financial close.

The 64km of construction involves two phases. Section 5, the northern section, runs for 18.7km, parallel with US Highway 183. The concessionaire will build two service lanes, then temporarily divert the traffic onto these lanes from the US183, which will be demolished and rebuilt as a 6-lane highway. The service lanes will then operate, untolled, as a local traffic route. Section 6, to the south, involves entirely greenfield construction, and will run for 45.3km. According to Cintra, this section is the more technically challenging, because the terrain is hilly, and the route involves crossing rivers and railway lines, necessitating bridge construction. Construction is underway and on schedule; the completed sections are due to be in operation by 2012, and will be tolled entirely electronically, with no cash collection. Under the CDA for the project, TxDOT shares a proportion of revenue with the concessionaire when the road is in operation.

Cintra's position in the Texas transportation market remains strong, despite the challenges it has faced. The company was awarded another of the TxDOT CDAs, for a concession of the SH121, under the same procurement plan as its SH130 project; the state then withdrew that contract, and awarded it instead to the North Texas Tollway Authority, a public authority, in the wake of the political unrest and two-year moratorium on private toll concessions. The NTTA reached financial close on the project in November 2007, but credit market conditions and lower passenger numbers have made serious dents in its finances. The moratorium, with all its loopholes, comes to an end in August 2009.

SH-130 Concession Company
Status: Closed March 2008
Size: $1.36 billion
Location: Texas
Description: 50-year toll road concession
Sponsors: Cintra (65%), Zachry (35%)
Equity: $197 million
Debt: $1.19 billion
Mandated lead arrangers: Banco Santander, Fortis, Banco Espirito Santo, CaixaBI, Caja Madrid
Lender legal counsel: Orrick
Sponsor legal counsel: Bracewell & Giuliani
State legal counsel: Nossaman
State financial adviser: KPMG
TIFIA legal counsel: Nixon Peabody
TIFIA financial: Montague DeRose
Lender technical: Atkins
Construction: Ferrovial Agroman, Zachry