The Cintra-Zachry consortium has reached financial close on the $1.36 billion concession of sections 5 and 6 of the SH130 in Texas. The concession was awarded in June 2006, following negotiations since 2005, though due to a number of political and market delays, the deal took 21 months close.

The concession, which was awarded by the Texas Department of Transportation (TxDOT), runs for 50 years, starting at the end of a five-year construction phase, and completes the route between the state's capital, 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 recently-enacted moratorium.

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 underwriting the debt. It also includes a significant TIFIA tranche.

The $685.8 million term loan has a 30-year maturity, including a grace period which covers the construction phase and a further two 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 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 maintain its covenants.

All of the bank debt is priced at 130bp over Libor initially, rising to 170bp over its 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 would cover 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 sponsors have also closed a loan from the Federal Highway Administration under its TIFIA programme, which consists of $430 million in principal and, according to the sponsor, an additional $45.5 million in capitalised interest during construction. The coupon on the TIFIA portion is 4.46%, based on long-term US Treasury rates.

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 6, interest payments become mandatory.

Cintra holds a 65% stake in the concession, with Zachry holding 35%. The equity contribution to the project is $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.

When the concession contract was signed in June 2006, the project company committed to a $25.8 million concession payment, indexed to inflation, to TxDOT which was made at financial close. The eventual payment, including accrued interest, was a little over $28 million. TxDOT will use the funds to finance other statewide transportation projects.

TIFIA requires that the project as a whole is rated at investment grade, though its own commitment can be rated below that level. Moody's has assigned the concession company and the bank loan a rating of Baa3, and a rating of Ba1 to the TIFIA funding.

The project was originally approved for private activity bonds (PABs). However, the concessionaire decided against using the PABs in the final financing. According to Jose Maria Lopez de Fuentes, director of Cintra in the US, the TIFIA portion was already in place, and the sponsors had assembled a strong syndicate of banks. Secondly, he notes that, should it have taken the PAB option, the already protracted financing process would have taken even longer.

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, as the terrain is hilly, and the route involves crossing rivers and railway lines, necessitating bridge construction.

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 benefits from a proportion of revenue sharing with the concessionaire when the road is in operation.

The road was the first of Texas' CDAs to be awarded, and Cintra was also awarded a second CDA, a concession for the SH121, which was then reawarded to the NTTA, a public authority, and reached financial close in November 2007 (For more details search "SH121").

Despite the difficulties with the SH121, Lopez remains upbeat about the future possibilities in Texas, and Cintra's role in the market; "By the time of the moratorium, this deal was already signed. The legislation allows a certain number of projects, which TxDOT is pursuing, and we will be very interested to see the outcome of the change in legislation when the moratorium is over at the end of August 2009."

SH130 Concession Company
Status: Closed March 2008
Size: $1.36 billion
Location: Texas
Description: 50-year ldl concession
Sponsors: Cintra (65%), Zachry (35%)
Equity: $197 million
Debt: $1.19 billion
Mandated lead arrangers: Banco Santander, Fortis (documentation agent), Banco Espirito Santo, CaixaBI, Caja Madrid
Lender legal counsel: Orrick
Sponsor legal counsel: Bracewell & Giuliani
TIFIA legal counsel: Nixon Peabody
TIFIA financial: Montague DeRose
Construction: Ferrovial Agroman, Zachry