Northwest Parkway: Full circle

The financing for Brisa and CCR's Colorado Northwest Parkway concession closed on 21 December, and was one of a small number of roads deals to reach financial close in North America in 2007. The acquisition of the distressed concession was the most comprehensive restructuring in 2007, and its terms highlight what banks will do to build market share in the US infrastructure market.

The 99-year concession for the existing, and previously non-profit, toll road was awarded by the state in agreement with the Northwest Parkway Authority when, after four years of operation, poor revenues indicated that original traffic projections had been overly optimistic.

RBS was sole underwriter on the $459 million bank debt, which closed on 21 December 2007, and launched syndication on 15 January 2008. Brisa holds a 90% stake in the concession, and CCR has the remaining 10%.

The facility is divided into three tranches, and its pricing increases over time, starting at 105bp over Libor in years one to three, 110bp in years four to six, and 125bp until maturity.

The term loan is $249 million, with a 10-year maturity, and covers the debt portion of the sum that Brisa paid for the concession. This tranche was reduced from $255 million (bringing the total planned debt down from $465 million), just before financial close. The change was due to the increased costs of the interest rate swap on the facility, which would have reduced cash flow, so RBS reduced the debt to maintain the targeted debt service coverage ratio (DSCR), which is set at 1.4x.

The second tranche is a $60 million loan, which is designed to be eventually replaced with equity. It carries an 11-year maturity, longer than a conventional equity bridge. This tranche is 100% guaranteed by Brisa. The sponsor is also providing $266.9 million in cash equity to the project upfront.

The third tranche is a $150 million liquidity facility, also with a 10-year maturity, designed so the sponsor can meet the debt service over the first six or seven years, until the road is expected to make enough to be self-sustaining. The facility essentially replicates, in a cheaper and simpler fashion, an accreting swap mechanism.

The road's revenues are expected to cover the base case and operating expenses during this ramp-up period, but the liquidity facility is necessary to meet the initial debt repayments. Under the base case, the lender estimates that only $70 million of the liquidity facility will be drawn; however, the additional $80 million was provided to meet the rating agencies' requirements in giving the deal an investment grade rating. Standard & Poor's rated the deal BBB-, and Moody's Baa3.

The rating, which is not normally solicited for bank deals, lays the groundwork for a refinancing. João Vasconcelos, Brisa's head of finance, explains that the sponsor had originally intended to use bond debt and a monoline wrap for the concession; "When the markets turned in August, first the credit bubble, then the monoline problem, it increased the pricing on a bond deal and made it less attractive to us. The requirements for the investment grade rating were already in place for the monolines, and we benefited from keeping the rating when we switched to a bank deal."

BNP Paribas, as syndication agent, and Caja Madrid and Caixa Geral de Depósitos, both document agents, signed on at sub-underwriter level before syndication launched. Each of the three took 22.5% of the total facility in pro rata commitments (approximately $103 million each). The arrangers invited roughly 20 potential participants to attend the bank meeting, and expect significant interest from Spanish and Portuguese banks, given the sponsor origins.

The sponsor will pay the state up to $603 million for the concession, of which $543 million was paid upfront to the Authority when the sponsor took control of the road on 21 November 2007. This sum was funded with the equity, and a $250 million bridge loan from RBS, which has now been taken out with the longer-maturity term loan. Brisa will pay the Authority $263,200 in additional annual instalments.

Of the upfront payment, $503 million is to repay the Authority's outstanding bond debt on the road. The remaining $40 million is to be held in escrow until 2018, when it will be transferred to the Authority if an extension is underway from the highway to US128 and US93; if not, the funds will be returned to the concessionaire. The concessionaire may also pay an additional $60 million, if approval for construction of a 3.7km section of the road to US128 comes before the 2018 deadline.

This concession is Brisa's debut in the US market. Victor Saltão, CEO of Brisa North America, says the concession appealed to Brisa for three reasons; "Firstly, the deal is an appealing size, not too big, so we perceived it to be executable in the market. Secondly, we liked that is was a brownfield project, as we are not designers and developers, but concessionaires. The road has been in operation since 2004, so we had some idea of the revenues. Thirdly, there is potential for growth in the future, as there is a section of the ring road yet to be completed".

Pedro Costa, CEO of the Northwest Parkway for Brisa, adds that the asset has the benefits of a brownfield project, but because it was built so recently, also requires no capital expenditure. He explains that the planned developments for the road are implementing Brisa's express toll system, which is inter-operable with the existing transponders, but will also allow users to pay for parking and petrol station services electronically. Brisa has already piloted the system in Portugal.

Brisa's financing package gives the concession enough time to test whether the new set of assumptions are better. With global credit markets rewarding simpler deal structures, the liquidity facility may become the market standard for transport deals.

Northwest Parkway
Status: Closed 21 December 2007
Size: $686 million (including administrative costs)
Location: Denver, Colorado
Description: 99-year concession of 18km toll road
Concession awarder: Northwest Parkway Authority
Sponsors: Brisa (90%) and CCR (10%)
Equity: $266.9 million
Debt: $459 million
Maturity: 10 and 11 years
Sole lead arranger and bookrunner: RBS
Agents: BNP Paribas, Caja Madrid, Caixa Geral de Depósitos
Financial adviser to sponsor: ABN Amro
Financial adviser to state: RBC Capital Markets
Legal counsel to lender: Freshfields
Legal counsel to borrower: Chadbourne & Parke
Legal counsel to the awarder: Mayer Brown
Technology and traffic consultant: Halcrow
Traffic consultant (sponsor): Cambridge Systematics
Traffic consultant (state): Vollmer