A30: Market milestone

The Autoroute 30 public-private partnership (PPP) road concession in Quebec is the largest financing for a greenfield PPP to close in Canada to date. The financing avoided syndicating in a tricky market by closing upfront with a club of 13 banks. The C$1.15 billion ($951 million at today's rates) bank debt closed in September 2008, though the procurement process ran for almost two years before then. The delays, and a heavily flexed pricing, both reflected the pressures in the Canadian and international debt markets, and the circumstances under which the deal closed.

The project's sponsors are Acciona and ACS/Iridium, supported by Arup, DJL Construction, and Verreault. The consortium mandated Banesto, BBVA, La Caixa and Caja Madrid, ICO and RBC as lead arrangers and bookrunners in June 2008. BES and Scotia, joined next, and Banco Popular Español, Bosic (HBOS' Canadian arm), DekaBank, HVB, and Société Générale then joined the financing before financial close, with smaller commitments. All 13 banks share mandated lead arranger status. The banks do not have any immediate plans to syndicate the debt.

The debt features two tranches; a C$804 million term loan, which has a 30-year maturity, and a C$290 million equity bridge facility with a five-year maturity. At the end of construction, C$197 million of the bridge will be outstanding. The sponsor is also contributing C$225 in equity. The sponsor and the province expect the cost of the project to be C$1.947 billion.

The pricing on the term loan starts at a little over 170bp over CDOR, and rises to a margin of roughly 225bp over the life of the debt. Pricing on the bridge is 170bp over CDOR. The pricing was significantly flexed, as the market dictated, and increased from a mooted 125bp starting point at the deal's inception in June 2008.

The pricing took a while to settle, since banks submitted wildly varying bids in the period when the deal was awarded. As the initial arrangers gradually broadened the club, pricing drifted up to the level of the more recent arrivals. Each bank took between C$60 million and C$90 million, with the Spanish banks and RBC taking the higher tickets.

According to Philip Tingle, chief financial officer at Nouvelle Autoroute 30, the province will pay the concessionaire C$1.538 billion (calculated at net present value), of which it will receive C$721 million of the construction costs back from the province in milestone payments during the construction phase, with the remainder coming during the road's operational period. He also notes that the project is important for Montréal as it will divert traffic, and especially freight traffic, away from the centre of the city, and completely off the island which, he believes, is not only relevant in terms of congestion and environmental concerns, but is also a significant political coup.

The concessionaire receives a small amount of revenue during operations from tolling the road, roughly 20% of the total, and the rest from monthly availability payments from the province's transport ministry. The traffic component was projected to start at 14% in the first year, rising to 30% over the life of the debt. The concessionaire will be permitted by the province to raise tolls to between a minimum and maximum range, according to inflation. The minimum and maximum rates are presently set at C$0.30 and C$0.70, depending on vehicle size, and will be increased to $0.45 and $1.05 at the start of operation, to reflect inflation. Both electronic and cash tolling will be available. The concessionaire receives the full amount collected if it falls below a certain threshold. Above the toll income sharing threshold, which is inflation-indexed, the province takes 50% of toll revenues. Once the road is in operation, the availability payments increase over time, with minimal payments in the first few years of operation.

The concession involves operation and maintenance of 35km of existing highway on the A30, and a new 42km greenfield extension to the road, creating a bypass to the south of Montréal. The A30 will connect with Autoroutes 10, 15, 20, 30, 540 and 40, linking the Montréal area with the Montérégie region, Ontario and the United States. Construction is underway, and is expected to take four years to complete. Government construction of the existing section of the road is almost complete. The section begins at Châteauguay, and extends to the Jean-Leman interchange in Candiac. The greenfield construction will be in two stages; the 35km western section, which runs between Châteauguay and Vaudreuil-Dorion, first, and then the consortium will add the 7km section to connect the road to Salaberry-de-Valleyfield.

The deal is the second road PPP to close in the province, following Macquarie's 2007 A25 concession. Macquarie also bid unsuccessfully for the A30 deal, as did an SNC Lavalin-led consortium. Though the earlier deal also closed under slightly trying circumstances in the credit markets, the increased pricing on the A30 asset reflects the worsened conditions. Société Générale was lead arranger on the C$270 million debt for the A25, which carried a margin of 125bp over CDOR. A number of the same banks participated in both deals. The A30 deal is widely recognised as having less traffic risk than the A25. The A25 deal takes around 40% of its revenues from tolls, with 60% coming from availability and milestone payments from the province.

Nouvelle Autoroute 30 SENC
Status: Closed September 2008
Size: C$1.947 billion
Location: Quebec, Canada
Description: 35-year concession of Autoroute 30
Concession awarder: Ministère des Transports du Québec
Province's adviser: Partenariats Public-Privé du Québec
Sponsors: Acciona, ACS/Iridium
Equity: $225.6 million
Debt: C$1.2 billion term loan and revolving credit facility
Maturity: 30 years
Mandated lead arrangers: Banesto, BBVA, La Caixa, Caja Madrid, ICO, RBC, BES, Scotia, Banco Popular Español, Bosic (HBOS' Canadian arm), DekaBank, HVB,  Société Générale
Lender legal: Ogilvy Renault
Sponsor legal: Gowling Lafleur Henderson
Province legal: Fraser Milner Casgrain
Province legal: Fraser Milner Casgrain
Financial adviser to sponsors: RBC
Financial adviser to province: KPMG
Independent engineer: CBR
Insurance adviser: Jardine Lloyd Thompson
Traffic consultant: Steer Davies Gleave
Traffic consultant to province: PB Consult
Technical adviser to lender: Intech Risk Management
Model auditor: Operis