A25 Québec: Strong and silent

Macquarie Infrastructure Partners closed the financing for its C$554 million ($538 million) Autoroute-25 road concession in Québec on 13 December 2007. The deal is the first toll road in the Canadian province, as well as its first public-private partnership (PPP). It is Macquarie's first PPP deal in Canada since the Sea-To-Sky project in British Columbia, which closed in June 2005.

Partenariats Public-Privé du Québec, the province's agency for delivering PPP projects, advised the province's Minstry of Transport when it awarded the 35-year concession in September 2007 to Macquarie's Infras-Québec A25 consortium.

Société Générale was mandated lead arranger on the C$270 million ($297 million) term loan, for which it launched syndication at a bank meeting in New York on 28 October 2007, and brought in 12 sub-underwriters, with the syndication twice oversubscribed. The participating banks are Bank of Scotland, National Bank of Australia, Bank of Nova Scotia, Commonwealth Bank of Australia, Sun Life Assurance Company, DEKA, AIB, Bank of Ireland, Bayerische Landesbank, ING, Nord/LB and Caja Madrid.

SG offered tickets of C$50 million and C$25 million. Pricing is 125bp over the Canadian Dollar Offered Rate (CDOR). The fees are 62.5bp on the C$50 million tickets, and 30bp on the C$25 million commitments. The depth of the response indicates that the strengths of the project, and the sponsor, outweighed Macquarie's cagey approach to syndication.

A Macquarie-led consortium is also bidding for the next toll-road concession up for grabs in the province, the larger A30 deal. This competitive situation exacerbated Macquarie's characteristic reticence in disclosing information to potential lenders on the A25. The sponsor is believed to have vetted the banks invited to participate in the A25 syndication, based on any affiliations with competitors on the A30 deal. It is up against teams led by SNC Lavalin and Acciona/Dragados.

Cynthia Jay, managing director at SG, led the A25 syndication process. She comments that, "despite a selective invitation list and the turmoil in the credit markets at the time of syndication launch, the deal was over two times oversubscribed, suggesting that well structured and appropriately priced infrastructure projects should continue to find liquidity even in today's choppy market."

The debt has a 30-year maturity but under the base case will be repaid after 15 years. The liquidity will be used to service debt during the ramp-up period, and can be drawn for a period of 24 months beginning on the termination date of the term loan availability period, July 2011, under the base case scenario. From September 2013, the financing features a mandatory amortisation in quarterly instalments of 0.125%, or annual instalments of 0.5% of the outstanding debt and mandatory prepayments. From September 2013 until September 2016, there is a 25% sweep of excess cash flow and a 100% cash sweep afterwards.

The minimum debt service coverage ratio is 1.84x. The consortium is providing 45% of the project's costs in cash equity, putting the capital costs of the project at C$490 million. The equity portion is as much as 53% of the total cost when all transaction expenses are considered. The province has estimated that the deal provides a value-for-money saving of C$226 million over the life of the concession, at net present value.

The A25 project is to design, build, finance and operate a 7.2km section of the Autoroute. The site is to the north-east of the Montréal metropolitan area. The construction of the new route will involve building two lanes in each direction, and three lanes each way on a new 1.2km toll bridge crossing the Des Prairies River between the Boulevard Bourassa, Montreal and Highway 440, Laval. It will also include the installation of electronic tolling. Construction is scheduled to begin in the fourth quarter of 2008, with a maximum three-year construction phase.

The concession is part-funded with toll revenues, and in part from availability payments from the province. The availability payments constitute 24% of the project's expected revenues over the 15-year average life of the deal. The lender also calculates that the debt could still be serviced were traffic volumes to reduce by as much as 70%. The availability payments are roughly C$13.4 million annually, which the province calculated at a net present value of C$142 million over the life of the concession.

The concessionaire will also receive C$80 million in milestone payments during construction. The province will transfer the risk of cost overrun and timetabling delays to the sponsor, and could make deductions of up to $650,000 per month for delays in progress and availability.

There are six alternative, untolled routes competing with the A25, and some bankers saw this risk as the most significant barrier to participating in the deal. Despite some reluctance on the part of the sponsor to reveal its traffic studies even to all of those involved in the syndication, the traffic studies conducted by the province are publicly available.

The tolls are set by the concessionaire, up to a maximum limit determined by the province, and will vary according to time of day. The province has suggested that it would cost a maximum of C$2.40 for a car to get onto the highway at peak times. The revenues from the tolls, as well as any refinancing gains, will also be shared with the province.

Infras-Québec A25
Status: Closed 13 September 2007
Size: C$554 million
Location: Quebec, Canada
Description: 35-year concession of a 7.2km toll road including a 1.2km bridge
Concession awarder: Quebec Minstry of Transport
Province's adviser: Partenariats Public-Privé du Québec
Sponsor: Macquarie Infrastructure Partners
Debt: C$270 million term loan and liquidity facility
Maturity: 30 years
Mandated lead arranger: Société Générale
Lender legal: Blakes
Sponsor legal: Stikeman Elliott
Province legal: Fasken Martineau
Financial adviser to province: PricewaterhouseCoopers
Insurance adviser: Moore-McNeil