The Portuguese roads sector continues to spawn deal closings, despite the liquidity crunch and bank angst over the future ownership of state-owned concessionaire Estradas de Portugal (EP).

In November the Mota-led Douro Interior closed. This month the Soares da Costa/ FCC/Ramalho Rosa-sponsored Transmontana has closed and a further two closings – Baixo Alentejo in January and Baixo Tejo before year-end – are imminent.

The reasons these deals are closing are several. First, state-owned EP – which collects the tolls and then pays availability to the sub-concessionaires – is not guaranteed by the state and theoretically could go bankrupt. But the Portuguese government would never allow that to happen, although there are still doubts about whether EP will always be 100% government-owned. Second, the EP sub-concession remuneration system is a mix of availability and shadow toll – the size of the availability payments depend on the amount of traffic and therefore shadow toll revenues – giving a degree of certainty to debt repayment. Third, there is the political will and strong bank-sponsor relationships to push the roads programme forward.

But there are still niggles with the system and worries that liquidity will be insufficient to finance EP's full Eu5 billion ($6.8 billion) roads programme. The deals that have closed to date will not actually fund until 2009 and at least some of the debt will come out of next year's lending budgets.
The majority of deals getting done feature cash sweeps that make early refinancing a must and put that refinancing risk on the sponsors. With project debt pricing high, early refinancing makes sense – if the lending market returns and sponsors can handle the risk without it hurting their share price. And if all goes to plan the government will also get a profit share from those refinancings. Given that potential government upside, some sponsors and lenders argue the state should take a share of the refinancing risk, thus freeing up even more liquidity.

Of all the Portuguese roads concessions the Mota-led Douro Interior was the surprise first financial close. Unlike other upcoming Portuguese concessions, it features no European Investment Bank (EIB) support, partly because it is not part of the EU TENs programme, but also because traffic volume was not deemed sufficiently heavy to justify EIB participation.

Consequently the deal was predicted to struggle to find bank appetite. It didn't. Arrangers claim realistic pricing – in effect a 60bp difference in margin between Douro Interior and Transmontana during the first eight years – and automatic funding postdated to 2009 got the deal done. In addition, remuneration to the concessionaire is 90% availability and 10% shadow toll.

Lead arranged by BES (also financial adviser), Caja Madrid, Banesto, Millennium BCP, Fortis and CaixaBI, the Eu762.5 million Douro Interior financing priced at 230bp over Euribor in years one to three, 240bp to year six and then 250bp to term.

The deal comprises a Eu752.5 million term loan and standby and working capital facilities of Eu5 million each. The nominal 27-year tenor is significantly reduced by a cash sweep in year eight, a mechanism also employed in Transmontana and Baixo Alentejo.

Douro Interior has a length of 270km – of which 261km is greenfield – and includes the construction of sections of IP2 between Valebenfeito and Celorico of Beira (IP5) and the IC5 between Populo (IP4) and Miranda do Douro and improvement of the current IP2 (already in service) between Macedo de Cavaleiros and Valebenfeito.

The total planned investment is Eu826 million (11% lower than the value estimated in the feasibility study). Of the Eu826 million, Eu623 million corresponds to the initial investment for construction and Eu203 million relates to the operation and maintenance during the 30-year concession.
The Eu600 million Autoestrada Transmontana project financing closed on 12 December. The deal was the first to have its bank group and pricing in place, and would have been the first to close, but had to wait for the EIB to sign off an additional Eu89 million guaranteed facility on top of the Eu200 million direct loan it is providing.

The 30-year PPP concession is for 130km of road from the coast east of Braganca to Vila Real and a 47km stretch to Amarante. The concession repayments are 85% availability and 15% shadow toll – a 5% lower availability payment than that of Douro Interior.

Lead arranged by Banco BPI (also financial adviser), La Caixa, Caja Madrid, Banco Popular, BBVA, Banesto and Santander, the Eu290 million commercial bank debt is priced at 170bp over Euribor to year three, 190bp to year eight and 250bp to term with an upfront fee of 140bp. Pricing o the EIB facilities averages out at 69bp. The deal also includes a small VAT facility and a Eu25 million debt service reserve.

The financing, like Douro Interior, has a nominal 27-year tenor but a cash sweep from the start, and the margin increases after year eight, effectively making the deal an eight-year miniperm.

There were some concerns that due to the deteriorating debt markets the terms of the underwritten bank funding would have to be changed, but the EIB's heightened participation smoothed the process. Like Douro Interior, the deal will automatically fund in 2009.

The next road to finance will be Baixo Tejo. At 32km of new road it is the smallest project in the roads programme. Sponsored by Brisa, the 30-year concession includes 22km of new motorway around the Lisbon area and Alcochete.

The Eu453 million financing – comprising a Eu351 million term loan, Eu62 million equity bridge and a Eu40 million debt service reserve – was fully underwritten at the bid stage by BES, CaixaBI and Santander, although Caja Madrid and BBVa are expected to join.

The financing differs from the other two deals in that it is a 14-year loan that amortises in semi-annual payments from year five onwards and therefore features no refinancing risk. This reflects the payments system for the road, which features a much higher proportion of shadow tolls to availability than the other concessions. The debt is priced at 190bp over Euribor to year three, 195bp to year five, 200bp to year eight, 210bp to year 11 and 230bp to term. The upfront fee is 160bp.

The EIB-backed financing for the Baixo Alentejo, sponsored by Iridium, Dragados and Edifer, looks set for a January 2009 close. A very similar deal to Transmontana, though around 10bp more expensive, the 27-year tenor on the loan uses a cash sweep to become a nine-year miniperm.

The debt facilities comprise Eu215 million of loans and cover from the EIB, Eu215 million from commercial lenders, which is being arranged by Société Générale, a Eu140 million equity bridge, a Eu25 million debt service reserve and a Eu15 million revolver. The deal is priced at 180bp to year three, 200bp to year five, 220bp to year eight and 250bp to maturity. n