Dublin National Conference Centre: Complexity made simple

Lead arranged by Depfa and Allied Irish Banks, the Dublin National Conference Centre (Spencer Dock) PPP financing featured a range of complex issues made simple by an innovative bespoke debt package.

Sponsored by Spencer Dock International Conference Centre Consortium – comprising Treasury Holdings, Harry Crosbie and Iarnrod Eireann – the deal is the first major Irish leisure PPP to finance.

The project is being built by a joint venture led by John Sisk & Son Limited and operated primarily by NEC (Ireland). The largest auditorium will host up to 2,000 delegates but the conference centre will cater for conferences of up to 5,000 delegates and is due to open in 2009. A 250-bed five star hotel, a separate project, is also in the pipeline.

The deal featured a number of problems thrown up by the project comprising two separate but related financings: the senior debt for the National Conference Centre and the junior/mezzanine for the underground car park beneath the site.

Although integral to the success of the conference project, the car park is a separate project owned by Spencer Dock and there is no relief for the conference project company if anything goes wrong with the car park. Consequently lenders to the conference centre needed certainty regarding the car park's construction.

This was achieved in two ways: First by the car park company agreeing to let the conference project company develop both projects using the same contractor on the same contract. Second, by mandated lead arrangers (MLAs) Depfa and Allied Irish Banks (AIB) putting up a Eu13.5 million junior/mezzanine tranche for the car park which although in practical terms goes to the conference project company is in fact a borrowing by the car park company that is fully repaid by Spencer Dock three months after start of service.

The concession and debt repayment structure also raised a number of issues, primarily sizing the unitary charges to cover debt and fixed costs. Although the concession awarder, the Irish Office of Public Works (OPW), is paying the charge (therefore the credit risk is the Irish government), the OPW also wanted a range of incentives and penalties to ensure that the fundamental economic reason for the project – putting Dublin on the international conference centre circuit (expected to bring in an additional Eu50 million in annual tourism revenue) – is met.

The lenders wanted the unitary charge to ensure a 1x debt service coverage ratio (DSCR) – in effect an assumption there could be no third party income. The OPW argued that if that were the case there would be no risk transfer, to which the banks responded that they were taking risk because a minimum DSCR for an availability deal would be 1.18x.

The deal features a 50/50 cash sweep for excess cashflow after debt service and appropriately sized annual unitary charges that are highly front-ended – Eu42 million from years 1-5 and Eu22 million thereafter. This helps manage long-term conference revenue risk with half the debt repaid in the first five years. The front-ended charge also works for the OPW in terms of NPV benefit.

There are also a number of potential penalties in place should the conference centre not pull in forecast international revenue, and the 1x DSCR only takes into account some of those potential deductions.

For years 1-5 the maximum reduction from the annual charge is 3% per annum if international delegate levels are below 2330 attendees per year. The lower initial deduction rate takes into account start-up glitches and the base case for the debt is actually 12,000 attendees. After year 5 the rate rises to 5% and if over five years a 15% deduction is accrued there is an event of default.

But even in the event of default a second set of tests kicks in to qualify that default – service, availability and performance, all with favourable thresholds. And if the project meets those thresholds, it can only be terminated with compensation to the lenders under force majeure.

The final bespoke aspect of the transaction is a variable cost O&M contract with costs subordinate to the debt costs. A fixed price contract was deemed inflexible, too expensive and no incentive to the centre operators to maximize conference income. Instead, the O&M company (owned by SDICC) invoices monthly while one-sixth of the next semi-annual debt service is also set aside per month from income. At the end of the six months the debt service is in place and if there is not enough cash to pay the O&M company a sponsor letter of credit kicks in to cover the cost.

The actual funding of the project, apart from the junior element, is fairly standard. The Eu250 million debt was underwritten by MLAs Depfa and Allied Irish Banks (AIB) with Ulster Bank and Barclays as sub-underwriters taking Eu37.5 million each.

The 26.9-year facility priced at 115bp during construction and for years 1-5 of operation; 120bp for years 6-10; 125bp for years 11-16 and 130bp from year 17 years to term. With the concession tenor being 25 years plus 40 months construction – 28.3 years in all – the deal comes with a fair tail. And pricing, although not rock bottom cheap by UK PFI standards, is relatively low given the bespoke elements with which lenders had to get comfortable: the deal was deliberately pitched at a level between standard UK PFI and its bespoke elements.

Dublin National Conference Centre PPP
Status: Financial close 5 April 2007
Description: First Irish leisure PPP
Debt: Eu250 million
Sponsors: Treasury Holdings, Harry Crosbie, Iarnrod Eireann
Lead arrangers: AIB, Depfa
Sub-underwriters: Barclays Capital, RBS/Ulster Bank
Lender counsel: Ashurst
Sponsor counsel: Arthur Cox
OPW counsel: McCann Fitzgerald
Sponsor financial advisory: KPMG
Financial model auditor: Operis
Legal counsel to John Sisk: Matheson Ormsby Prentice
Legal counsel to NEC: Pinsent Masons