Société Générale is set to close its financing for Macquarie Infrastructure Partners' Autoroute-25 road concession in Québec on 28 November 2007. The C$270 million ($297 million) term loan is currently in syndication, and commitments came in 14 November, following a bank meeting in New York on 28 October 2007. The financing is for the first PPP in the Canadian province, but several participants said that they had to overcome spikes in funding costs for non-Canadian banks, and Macquarie's reluctance to share invitations and information widely.

SG was offering tickets of C$50 million and C$25 million, though it would reduce the allocation should the syndication be oversubscribed. 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. Banks that were known to be considering commitments were AIB, Bank of Ireland, Depfa, Dexia, Nord LB, RBC and Scotia.

The timing of the syndication was less than optimal in the light of current credit market conditions. For non-Canadian banks the problem is even more acute: Canadian banks are currently charging foreign banks, even those with branches in the country, a premium of between 15bp and 25bp over the base rate for Canadian dollar funds. The premium, which reflects their nervousness over the health of the global financial system, has the result of reducing the effective margin on the A25 debt by the same amount.

The debt has a 30-year maturity but under the base case will be repaid after 14 years. The financing features interest-only repayments for the first two years, a sweep of 25% of excess cash until year eight, and 100% after year nine. The minimum debt service coverage ratio is 1.8x. 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.

Though the debt may be syndicated more widely later, a source present at the bank meeting said that the invitations to participate were selective, and that the sponsor had pre-approved the invitees. Market rumour also suggests that several banks did not receive invitations because of their links to other bidders on the A30 project, the next Autoroute concession to be awarded in Quebec. Macquarie has also pre-qualified for this project, and is up against teams led by SNC Lavalin and Acciona/Dragados respectively. The sponsor is, say several bankers, anxious to restrict the flow of information about its financing strategy to bankers working for its rivals. However, Dexia, which is backing the SNC Lavalin group on the A30, was invited into the A25 syndication.

Partenariats Public-Privé du Québec, the province's agency for delivering PPP projects, awarded the 35-year concession in September 2007 to Infras-Québec A25; a consortium of Macquarie Infrastructure Group, Kiewit Construction, Ciment St-Laurent, Parsons, Genivar and Miller Paving. The Macquarie team beat consortiums led by SNC Lavalin, and Acciona with Bouygues Travaux Publics.

The A25 project is to design, build, finance and operate a 7.2km section of the Autoroute for 35 years. 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 14-year 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 approximately 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 a possible barrier to participating in the deal. Some of the banks have conducted their own traffic studies to try and assess how viable these alternatives are. One banker said that some of the details from the traffic study conducted by the sponsor and MLA were blacked out in the info memo. The traffic studies conducted by the province are publicly available.

The tolls would be set by the concessionaire, within a maximum set by the province, and would 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, would also be shared with the province.

The A25 is Macquarie's first PPP deal in Canada since the Sea-To-Sky project in British Columbia, which closed in June 2005. Since then, hospitals have dominated Canada's project pipeline, and many in the market viewed Macquarie's bid in Quebec as a long shot. It owns one road concession in Montréal, and has a very real chance of winning a second nearby. Macquarie could build up a strong franchise in the city, and has a good track record of maximising revenues from real toll concessions. In the circumstances, its attempts to preserve through secrecy its competitive edge are understandable. The frazzled syndication market, however, been hoping for a more inclusive process. But, as Project Finance went to press, six to seven lenders were understood to have come in.

Infras-Québec A25
Status: Due to close 28 November 2007
Size: C$490 million
Location: Quebec, Canada
Description: 35-year concession of a 7.2km toll road including a 1.2km bridge
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