Santander, Dexia and HSBC are set to launch syndication at the end of June 2008 on Ps6.061 billion ($585.5 million) of bank debt for ICA/GlobalVia's Nuevo Necaxa–Tihuatlán toll road deal in Mexico. The 30-year build, finance, operate and maintain concession is the first hybrid of a real toll concession and a public private partnership under the Secretaría de Comunicaciones y Transportes (SCT) PPS programme.

The financing closed on 2 June 2008, although the Ps6.887 billion deal was awarded in June 2007, and sponsors and lenders reached terms on the financing in principle at that stage. The SCT planned for a pause of a year in the financing process so that it could finalise the design of the concession with the sponsor, and to confirm rights of way before construction started.

Santander is mandated lead arranger on the financing, and Dexia and HSBC joined as bookrunners at the signing stage, with each taking a third of the debt. The Ps6.061 billion in nine-year bank debt is divided into two tranches; a Ps5.51 billion construction facility and a Ps551 million liquidity facility. The sponsors are providing 20% of the project's costs in equity, split 50/50 between ICA and FCC.

Both tranches are priced at 165pb over the Mexican inter-bank rate, TIIE, in the first four years, rising to 185bp over TIIE in years five to seven, and 200bp thereafter until maturity. The commitment fee on the debt is 35bp. Both facilities feature a bullet at maturity, and the amortization schedule also includes a cash-sweep that steps up over the life of the debt after the four-year construction period, starting at 50% in year 5 and increasing 10% per year, and reaching 100% in the final year.

The sponsors intend to refinance the debt in the capital markets before maturity. Should the refinancing not occur, the 100% cash sweep would mean that under the base case the debt would be fully amortized a hypothetical nine years after maturity. The floating rate interest rate on debt is swapped into fixed rate: During construction 100% is hedged, and 85% thereafter, with Santander the swap provider.

Dividend return on equity is dependent on a The sponsors may only extract dividends from the project company if the debt meets a minimum debt service coverage ratio of 1.2x. Of the total financing, Ps4.96 million will be used for the construction of the road, another Ps155.8 million will be used to fund a debt service reserve, and a further Ps90 million is to be used to provide letters of credit and for insurance purposes. The remainder is earmarked for financing and administration costs.

The project involves construction of a 36.6km highway between Nuevo Necaxa and Avila Camacho in the state of Puebla, which will operate under a PPP concession from the SCT, and a real toll concession to operate and maintain the existing 48.1km highway between Avila Camacho in Puebla and Tihuatlán in Veracruz. Both roads are a part of the Mexico-Tuxpam highway, a major artery in the country's transportation network. Construction began on 10 June 2008. The engineering, procurement and construction contractor for the roads is a joint venture of ICA (60%) and Global Via, an 50/50 Caja Madrid/FCC joint venture (40%), while the operations and maintenance contractor is split 50/50 between ICA and Global Via.

The PPP portion of the deal will involve inflation-adjusted, quarterly availability payments of Ps112.4 million from the SCT to the sponsor special purpose vehicle, Auneti, which will commence after construction. The sponsor estimates that this portion of the deal will account for 72% of the total projected revenue, with the remaining 28% from the toll concession. The concession portion will benefit from an initial contribution of government funding, provided through FINFRA, the fund managed by the public development bank, Banobras.

According to Gabriel de la Concha, finance director at ICA, the single combined financing for what was essentially two different projects, was complicated but ultimately benefits lenders. He notes that, "The ability to establish a common structure dealing with two sources of funds, which are completely independent, and making it efficient, was a victory for the financiers over the lawyers. The lawyers wanted to separate it, to have a documentation process with two trusts, and maybe two credit agreements. At the expense of such, we ended up with a more streamlined mechanic that benefits from a natural internal diversification."

The SCT provides the designs for both of the sections, and sets the maximum toll rates on the roads. The concessionaire takes the full risk on the real toll section, and a minimum amount of risk is transferred from the SCT on the PPP section. There is some significant capital expenditure required on the brownfield section of the project, as well as the construction of the greenfield route, including bridge replacement, and upgrading the road.

This hybrid concession is the first of a number of similar deals coming to market in Mexico. The $400 million Rio Verde-Ciudad Valles toll road, also an ICA-sponsored project, is expected to reach financial close in the coming months, and is said to feature a similar financing structure and elements of both the PPP and real toll deals that have been executed in the country recently. According to the sponsor, at least one more hybrid is expected to come to market this year.

Autovía Necaxa-Tihuatlán (Auneti)
Status: Closed June 2008, syndication due to launch shortly
Size: Ps6.887 billion
Location: Mexico
Description: Hybrid 30-year concession and PPP agreement for two toll roads
Concession awarder: Secretaría de Comunicaciones y Transportes (SCT), Mexico
Sponsors: ICA, GlobalVia (a 50/50 joint venture of FCC and Caja Madrid)
Equity: Ps1.377 billion
Debt: Ps6.061 billion
Maturity: 30 years
Bookrunners: Santander (MLA), Dexia, HSBC
Legal counsel to lenders: Galicia & Robles
Legal counsel to borrower: White & Case
Technical adviser: Aries