A1 Mobil: Holding the lane

The concession for the Hamburg-Bremen section of the A1 toll road provided the market with the A-Model programme's largest financing to date. The Eu595 million ($800 million) deal syndicated, to a small number of banks, despite being the only prominent European road deal to come to market in late 2008 with traffic risk. It endured far fewer modifications than deals with less revenue risk. And although it was underwritten before Lehman Brothers' collapse, it syndicated post-Lehman, and still pulled in five further banks at a time when lenders were only looking at availability-based deals.

The financing benefited from the German government's increasing willingness to assume greater risk on successive A-Models. In this case, the request for proposals was tweaked to accommodate sponsor and lender scepticism about the volume of heavy goods vehicle traffic on the road, which will be the road's primary source of repayment. The tolling profile is far from speculative – this section has a 15-year tolling history – but lenders still needed to be comfortable with traffic's sensitivity to economic growth (or lack thereof).

The sponsors of the 70km A1 concession are Bilfinger Berger (42.5%), John Laing (42.5%) and Johan Bunte (15%). The tweaks to the concession, and their ability to get an underwritten commitment, as much as their relationship pull, allowed them to expand their initial mandated lead arranger group from Unicredit/ HVB, Caja Madrid and DZ Bank to bring in another five banks, including Deka Bank and Commerzbank. Financial close and syndication survived the departure of RBC, in large part because of Unicredit's willingness to take on a larger underwriting commitment.

The deal broke down into a Eu480 million term loan; a Eu35 million debt service reserve facility; a Eu5 million revolving working capital facility; a Eu60 million 4.5-year equity bridge and a Eu15 million 6.5-year performance bond. The 29-year debt benefits from a cash sweep from year 20, as well as from a pricing flex that increased the debt's margins from 125-140bp to 150-160bp over Euribor.

Even with the cash sweep however, the concession only lasts one year beyond the debt's maturity, or two if the cash sweep pays down the debt as forecast. These forecasts are based in part on the road's economic importance, since it allows traffic from the Benelux countries to reach the German ports of Hamburg, Bremerhaven, Bremen, and Lübeck, and then move onwards to eastern Europe. It will also serve a new port at Wilhelmshaven that will be operational from 2010.

Only vehicles above 12 tonnes will be tolled, with the state assuming collection risk, and indexing tolls to inflation. While traffic's sensitivity to tolling is already understood, the financial structure nevertheless included a debt service reserve facility.

The model on which the financing was based had already been adjusted to take account of more pessimistic predictions of GDP growth, to which HGV traffic growth is closely correlated. Germany, a big exporter, slid into recession with alacrity once the financial crisis spread from the US, though by the time all of the work on the road is complete, in 2012, the country's economy may be over the worst. Moreover, as Frank Schramm, managing director at Bilfinger Berger Project Investments, notes, "the financing has been robustly structured to accommodate the impact of slow GDP growth on traffic levels."

The results of this structuring were decisive: a project that reached financial close in less than five weeks from the concession being awarded, and a take-up in syndication that allowed the leads to scale back their commitments to their original plan. A two-phase syndication and fees that topped out at 75bp for a Eu50 million commitment helped move the deal, but not as much as the margin flex and a concession that had been beefed following a close read of market sentiment.

The small number and mutability of Germany's A-Model concessions has been both a help and a hindrance. Germany's sponsors, conditioned to look for a substantial number of PPP opportunities elsewhere, nevertheless fight for the small number of concessions on offer. At the same time, the long periods between projects often means that sponsors and the Federal government need to move to combat sudden shifts in bank market sentiment.

The A1, in this respect, suffered comparatively little, particularly given its timing. Subsequent comparable European deals, even those for availability-based assets, impose much more onerous conditions on sponsors. The latest of the A-Models – the A5 – will likely need to be thoroughly reworked to cope with the downward turn in lender sentiment. That the A1 avoided this fate says something about its timing, and a lot about the project's lenders top hold to their commitments under difficult conditions.

A1 mobil

Status: Syndicated November 2008
Size: Eu595 million
Location: Northern Germany
Description: A-Model road financing
Sponsors: Bilfinger Berger; John Laing; Johann Bunte
Financial adviser: Macquarie
Lead arrangers: Unicredit/HVB; Caja Madrid; DZ Bank
Government financial adviser: Investitionsbank Schleswig-Holstein
Government legal adviser: Norton Rose/ CMS Hasche Sigle
Lenders' independent engineer: BUNG Ingenieure AG
Lenders' traffic consultant: Mott MacDonald
Lenders' legal adviser: Allen & Overy
Lenders' insurance adviser: Willis
Sponsors' traffic consultant/engineer: ProgTrans AG Basel
Sponsors' legal adviser: Linklaters
Sponsors' insurance adviser: GBV
Model auditor: PwC
EPC contractor: Bilfinger Berger and Johann Bunte joint venture.