Ostregion/A5: Minimal carry

Sponsored by Bonaventura – a consortium comprising Hochtief PPP Solutions, Alpine Mayreder Bau, Egis Projects, Deutsche Asset Management/RREEF and Meridiam/AECOM – the Eu988 million ($1.97 billion) A5 Nordautobahn PPP financing (also known as Ostregion Paket 1 or Ypsilon) was the first Austrian road PPP to incorporate and mitigate real risk transfer to the private sector, the first monoline wrapped Austrian PPP bond and the biggest privately funded infrastructure project in Austria to date.

But the deal is more deserving than simply incorporating a series of firsts for Austrian PPP – given the atrophied state of the Austrian PPP market until the A5, any deal would probably have achieved some kind of first.

What singles the A5 out is the structure and benefits of its multiple drawdown bond which minimizes the cost of carry to the sponsors (unlike a traiditional bond), provides funds as and when construction requires and leaves the underwriters free of the exposure of a conduit-style deal where there is the potential for a pricing mismatch between long term project debt and refinancing in the short-term CP market.

The structure put Bonaventura 10% ahead of its nearest competitor in the bidding process and gave Austria an estimated whole-life cost saving against a public sector comparator of 15%-plus.

The Eu1 billion project is the first of four in Asfinag's (Austria's state-owned road authority) Ostregion programme (total estimated cost Eu3.4 billion ($4.4 billion)). The overall programme includes the construction of a new motorway from the outskirts of Vienna to the Czech border, new ring-road around Vienna, the extension of an existing road and a new crossing of the River Danube.

The 33-year phase 1 DBFO concession is also split into four parts – a 23km stretch of the A5 motorway heading north from Vienna, 12km sections of the S1 East and S1 West of Vienna ring road and the 5km S2 Bypass around the village of Sussenbrunn – totalling around 52km of road. Construction will be finished in 2010 under a Eu798 million fixed price, date certain, lump sum, turnkey contract (awarded 50/50 to Hochtief and Alpine) with Bonaventura receiving milestone payments as it completes sections of the project.

The EPC contract is supported by a performance bond (10% of the total EPC contract) and a Eu20 million bank guarantee. Both EPC contractors agreed to provide a liability bond (3% of the total contract) and Bonaventura retains 1% of all payments until the work is finished.

The Eu875 million debt financing comprises Eu425 million of 32-year privately placed, Ambac-wrapped multiple drawdown floating rate notes sole arranged and underwritten by Deutsche; a Eu350 million Ambac-guaranteed floating rate loan from the EIB; and Eu100 million of fixed rate forward purchase junior funds bridge bonds with multiple drawdown.

Equity/junior funds comprise Eu78 million of floating rate mezzanine notes and Eu24 million of subordinated participation rights; Eu24 million of tax efficient subordinated participation rights and Eu2 million of pin-point equity.
The junior funds are invested back-ended at construction completion and pre-funded by the junior funds bridge facility. The junior funds are backed by a letter of credit that satisfied both the junior bondholders and Asfinag's security requirements. This was achieved by issuing separate L/C documents to each of the junior bondholders and Asfinag under the same maximum facility. This covered the amount injected under the junior bonds for the benefit of the junior bondholders and the amount outstanding and committed to the project for the benefit of Asfinag.

Issued by SPV Ostregion Investmentgesellschaft Nr 1 SA, the Ambac-wrapped debt features a fixed/floating swap from Deutsche that gives certainty of pricing to Bonaventura. The bond was fully issued, underwritten at financial close and immediately repurchased by the issuer. The repurchased bonds are held in custody and bear no interest until purchased by the underwriter under a fixed forward purchase schedule – hence minimal carry.

Pricing has never been released – Deutsche bought most of the bonds for its own trading book, which made make sense given the multiple drawdown structure.

The issue comes with no spens clause (the obligation of a bond issuer to repay the lender at a price equivalent to the yield of an underlying benchmark bond in the event of premature redemption) and in the case of premature termination Deutsche's fixed/floating swap is settled with compensation only covering the remainder of the outstanding debt.

Debt repayment is via a mix of availability payments and traffic dependent shadow toll payments. Availability payments make up between 65% and 75% of the base case revenues and the remaining shadow toll payments are split into five bands each for heavy goods and light vehicles with a cap on heavy goods income of 55% of overall toll income.

The project is leveraged on a 88:12 debt-to-equity ratio which would be high but for the relative certainty of the concession payments. Annual debt service coverage is set at 1.125x for the first 23 years then rising to 1.15x to maturity.

The payment regime does include some exposure to traffic risk, but this is minimal thanks to a minimum revenue guarantee from Asfinag: if traffic volume falls below a worst case scenario where annual debt service coverage falls below 1.05x Asfinag will make up the difference.

Ostregion Paket 1/A5 Nordautobahn
Status: Financial close 12 January 2007
Description: Wrapped bond financing for Phase 1 of Ostregion roads programme
Debt: Eu1 billion
Sponsors: Hochtief PPP Solutions; Alpine Mayreder Bau; Egis Projects; Meridiam Infrastructure (AECOM); RREEF Infrastructure (Deutsche)
Projects concession awarder: Asfinag
Lead arranger/bookrunner: Deutsche Bank
Government financial adviser: KPMG
Monoline: Ambac
Multilateral debt: EIB
Mezzanine providers: Deutsche RREEF; Meridiam
Financial adviser to Asfinag: KPMG
Legal counsel to sponsors: DLA Weiss-Tessbach
Legal counsel to Asfinag: Linklaters; Haslinger Nagele & Partner; Doralt Seist Csoklich
Legal counsel to lenders: Allen & Overy; Wolf Theiss; McGrigors; CMS Cameron McKenna
Traffic forecasting: Faber Maunsell; Intraplan
EPC contractors: Hochtief Construction AG; Alpine Mayreder Bau GmbH