New Tyne Crossing: Prudence pays

The £397 million ($794 million) New Tyne Crossing is the first project financing to accommodate the fundraising powers of a local authority/concession grantor (in this case Tyne and Wear Passenger Transport Authority (TWTPA)) under the UK Prudential Borrowing Code.

Prudential Borrowing allows the public sector to borrow externally and provide direct capital injections to the concessionaire. The savings are passed to the tunnel users by minimising toll levels. TWTPA also retains the right to set toll levels throughout the concession and the payment mechanism is designed to enable the prudential borrowing to be serviced from toll revenues.

Due to the TWPTAs' capital contributions a uniquely low leverage was achieved with senior debt representing just 50% of total funding requirements.

Lead arranged and underwritten by Bank of Scotland, HSBC and Natixis, the £236 million 29-year debt package is split between a £205 million term loan, an £11 million change in law facility and a £20 million debt service reserve. The deal also features an equity bridge of £40 million.

The project benefits from £28.3 million in toll revenues to be collected during the construction period (pre-completion revenues) and a £ 114.6 million subsidy from TWPTA.

The deal is priced at 105bp over Libor during construction, and from 95bp to 110bp during operation. DSCR is 1.25x at mid-life and the facility features both an accrediting swap structure and RPI swap structure.

The TT2 consortium was named preferred bidder in April 2007 and consists of Bouygues (18%), Bank of Scotland Corporate (41%), and HSBC Infrastructure Fund Management (41%).

The 30-year project involves constructing a second road tunnel under the River Tyne and refurbishing the existing road tunnel. The new tunnel will be built using advanced immersed tunnel techniques by Bouygues Travaux Publics SA over a three-year period. Once built, the new tunnel will carry all southbound traffic and, following refurbishment, the existing 40 year old traffic tunnel will be given over entirely to northbound traffic. All operations and maintenance are retained by the concessionaire.

Lenders are comfortable with the concessionaire assuming traffic risk, as they are confident of accurate predictions based on traffic volumes on the existing road.

The existing tunnel has been a tolled since 1967. Users of both tunnels will continue to be tolled with all toll income being passed to the Tyne & Wear Passenger Transport Authority (TWPTA). The TWPTA will then pay the concessionaire its share of the traffic revenues based on a banding mechanism.

The deal launched to syndication on 25 February.

New Tyne Crossing
Status: Signed 23 November 2007
Sponsor: TT2
Mandated lead arrangers: Natixis, HBOS and HSBC
Facility agent: HBOS
Financial adviser to the borrower: CIBC
Legal adviser to the lenders: Freshfields
Legal advisor to the borrower: Clifford Chance
Legal adviser to TWPTA: Herbert Smith
Traffic adviser to the lenders: Halcrow
Technical adviser to the lenders: Capita Symonds
Insurance: Willis
EPC: Bouygues Travaux Publics