Diabolo and Via-Zaventem: Twin template

The Diabolo rail project and the Via Zaventem road project – linked Belgian transport PPP projects to improve road and rail links around Brussels International (Zaventem) airport – set an unusual PPP template: a single construction tender for both projects and two separate tenders for investors in each project.

The deals also featured a novel fusion of debt and equity roles with the awarding Fortis and HSH Nordbank acting as both investor and lead arranger on Zaventem and Diabolo respectively. The financings closed within weeks of each other and are the first Belgian infrastructure projects to be PPP funded.

The rationale for the two-in-one template is that the rail project has significant interface with the road scheme and procurement on one construction contract would create significant cost savings.

Similarly, the projects were tendered separately to investors because road and rail are controlled by separate Belgian authorities with different competencies and requirements. Consequently, though the two projects share similar features, the Diabolo rail project has some traffic risk, whereas repayment on Via-Zaventem is based purely on availability.

The 40-year Diabolo rail DBFT concession is an underground connection between Zaventem airport and a future Schaerbeek-Mechelen railway line. State owned infrastructure manager Infrabel appointed Babcock & Brown (75%) and HSH Nordbank (25%) as private sector investors in project company Northern Diabolo in September 2007, the pair having negotiated since July 2006 as non-exclusive preferred bidders.

During the 35-year operating phase, the project company's revenues will be predicated on three main sources: a supplement charged to the individual passenger for every trip to or from Brussels national airport station (currently Eu3.8 and indexed to inflation); a yearly indexed contribution from Infrabel of Eu9 million; (and an annual contribution from the rail operators – 0.5% of the national fare receipts). An adjustment mechanism allows the project company to request an increase in fares if traffic is lower than base case forecasts, but any amendment must be ratified by Parliament.

The project company is the facilitator of the infrastructure and has no direct control over the operator of the trains and cannot compel the Brussels Airport Company to direct passengers to the station. Banks that supported losing bidders have raised concerns at the quality of the concession given these issues: lack of control of train frequency, quality of trains and the interface with the Brussels Airport Company.

However these risks are mitigated with a minimum standards and minimum timetable agreement with Infrabel. This agreement supports the financial base case, which is set low to give comfort to investors and lenders. Also, the airport station is categorized as a premier station – the highest level in the hierarchy of stations within Belgium – which will ensure a minimum frequency of trains.

The total investment for the Diabolo project amounts to around Eu370 million of which Eu315 million is privately financed. Just under Eu36 million in combined equity is provided by Babcock & Brown and HSH Nordbank.
HSH Nordbank sole lead arranged the debt which comprises a 31-year Eu279 million senior term loan (with an average life of 20 years), a Eu15 million standby facility and a Eu12 million letter of credit. The standby facility protects cashflow in the early years of the project, and if drawn will be amortized along the same repayment schedule as the senior debt. Pricing is just over 90bp, with ASDCR modelled to be no lower than 1.4x.

The railway works include the extension of the existing underground station, the completion of a bore-tunnel (2 single-track tunnel tube of 1,070 metres each), the underground train path of the "Brucargo" industrial retail park, several underground junctions with the E19 motorway and the construction of the access ramps to the E19's central reservation for the connections along the new line Schaerbeek – Mechelen. That connection will be realised through an underground railway branch in Machelen. Construction is set to start by the end of October 2007.

The Eu60 million improvement to the road network north of Zaventem airport is joint-sponsored by Fortis (51%) and a public company, Via-Invest Vlaaderen, (49%). Via-Invest is itself owned by the Flemish PPP taskforce Participatie Maatschappij Vlaanderen (PMV) (51%) and the Flemish Region (49%).

Fortis is also is putting up Eu60 million of senior debt. The concession has a construction period of 4.5 years and an operating period of 30 years, which allows a six-month debt-free tail. The debt is structured and priced at near the benchmark for availability-based road schemes in Europe at around 50bp and around 1.25x ADSCR.

Via-Zaventem contractually passes through most of the construction and operating risks to the EPC consortium, the project company is taking only residual risks for a return of between 8% and 12% IRR.

The contractors – CEI-De Meyer, MBG, Wayss & Freytag, VINCI Construction Grands Projets and Smet Tunnelling – are operating under a classical lumpsum turnkey EPC contract. Some sophisticated inter-project documentation was required to allocate the risks between the overlapping rail and road projects, though the path to financial close was smoothed by some protocol agreements between Infrabel, the awarding authority on Diabolo, and the Flemish region.

Northern Diabolo NV
Status: Financial close 28 September 2007
Description: PPP financing to improve rail connectivity to Zaventem airport
Awarding authority: Infrabel
Sponsors: Babcock & Brown (75%); HSH Nordbank (25%)
Lead arranger: HSH Nordbank
Financial adviser to Infrabel: CTBR
Legal adviser to Infrabel: Cleary Gottlieb Steen & Hamilton
Legal advisers to debt and equity: Allen & Overy (project docs and debt); Freshfields Bruckhaus Deringer (equity docs)
Technical and traffic consultant: Scott Wilson
Insurance: Marsh
Model Audit: PkF

Via-Zaventem
Status: Financial close 12 October 2007
Description: PPP financing to improve road connectivity to Zaventem airport
Awarding authority: The Flemish Region (PMV)
Sponsor: Fortis
Lead arranger: Fortis
Legal adviser to authority: DLA Piper
Legal adviser to Fortis: Nauta Dutilh
Construction consortium on both projects: THV Dialink comprising CEI-De Meyer, MBG, Wayss & Freytag, VINCI Construction Grands Projets and Smet Tunnelling
Financial adviser to the Flemish authorities: Rebel Group Advisory