Millau Viaduct: Reaping the dividend

The Eu573 million ($1.14 billion) Millau Viaduct refinancing must bring a smile to the faces of the board members at sponsor Eiffage – not because it raised the longest PPP debt tenor (44 years) in France to date, nor that it is the first index-linked wrapped bank debt for a French infrastructure project; mere trifles. No, the pleasure comes from releasing a significant dividend from a project that was so technically challenging it was deemed, by many analysts, a risk too far rather than an opportunity.

The project is a global landmark piece of infrastructure – both the tallest road bridge and the longest cable-stayed deck in the world. Designed by UK architect Norman Foster the Viaduct spans 2,460 metres across the valley of the River Tarn near Millau in southern France.

The bridge forms the last link of the A75 autoroute, (la Meridienne) from Clermont-Ferrand to Pezenas (to be extended to Beziers by 2010). The A75, with the A10 and A71, provides a continuous high-speed route south from Paris through Clermont-Ferrand to the Languedoc region and through to Spain. The bridge has a high tourist traffic volume heading to southern France and Spain because the route is direct and without tolls for the 340km between Clermont-Ferrand and Pezenas, except for the bridge itself.

Eiffage won the project tender in 2000 beating off rival bids from Dragados with Skanska and Bec; the Societe du Viaduc de Millau consortium comprising ASF, Egis, GTM, Bouygues Travaux Publics, SGE, CDC Projets, Tofinso and Autostrade; and a consortium led by Generale Routiere with Via GTI, Cintra, Nesco, Acciona et Ferrovial Agroman. Eiffage's concession to collect tolls runs until 2080 although, if the concession is excessively profitable, the French government can assume control of the bridge in 2044.

Despite the glamour of the asset, Eiffage was perceived as highly exposed to the risk of failing to complete the project within the three-year-and-three-month contractual deadline. Consequently limited recourse financing was not an option and the Eu400 million debt for the original 2001 financing was in the form of shareholder loans, which Eiffage funded through a corporate loan arranged by BBVA, CIC, Credit Agricole and Societe Generale.

Six years later, and with the project completed on time by December 2004, Eiffage received a dividend through a holdco/ finco refinancing structure that backs the sale of a 49% stake in the holdco Verdun Participation 1 (VP1) to public infrastructure fund Caisse de Depots et Consignations (CDC).

The refinancing took the form of a hybrid, combining the features of a project financing and a leveraged acquisition financing. The deal comprises two tranches loaned to the finco Verdun Participations 2 (VP2) – a Eu430 million 44-year commercial loan lead arranged by Depfa and Dexia, and a Eu143 million 30-year loan from the EIB. Both facilities are French CPI index-linked and include a 10-year grace period. All-in pricing on the deal is around 70bp – very competitive given Millau has a toll based income stream.

Wrapped to triple-A by Dexia-owned Financial Security Assurance (FSA) and MBIA, Standard & Poor's also gave the deal a recovery rating of 2 (in the event of a default the rating agency expects a considerable amount of the debt to be repaid). Lenders could also take comfort from relatively predictable cashflows generated by the project given the Viaduct has been in operation since 2004.

The new deal is structured with a downstream loan from VP2 to the project company Compagnie Eiffage du Viaduc de Millau (CEVM) that is smaller than the amount borrowed, thus accounting for Eiffage's dividend. Lenders do not have direct recourse to CEVM and are therefore reliant on dividend and interest payments from CEVM to the holding company, as well as repayment of the principal on the original inter-company loan from Eiffage.

High leveraging was one of the weaknesses highlighted by S&P's analysis of the deal at the time, with debt to EBITDA of 25.9x at June 2007. The dividend lockups are also relatively low, with triggers at 1.35x during the initial 10-year grace period and 1.17x during the principal repayment phase. Also, as the lending is to VP2 and includes the amount of the dividend, the recourse the lenders will have to the project itself is less than the full amount of the loans.

Mitigating these risks, the project has a fully funded debt service reserve account and the length of the concession tail should help ensure a full debt recovery in the event of the borrower defaulting.
Traffic risk is also diminished by the fact that the bridge is the only tolled part of the A75 motorway, while the seasonal nature of the traffic is helped by the fact that tolls go up by Eu2 in July and August. Moreover, the fact that the debt is index-linked provides a natural hedge as revenues and operating expenditure both increase in line with CPI.

Millau Viaduct
Status: Closed 13 July 2007
Debt: Eu573 million
Location: France
Description: Toll bridge refinancing
Sponsors: Eiffage, CDC
Financial adviser to the sponsors: Lazard
Lead arrangers: Depfa, Dexia, EIB
Monolines: FSA, MBIA
Borrower legal counsel: Linklaters
Lender legal counsel: Clifford Chance