Due to reach financial close mid-2008, the Eu3.291 billion Antwerp Masterplan, an ambitious and surprisingly cheap multi-modal revamp of Antwerp's transportation system, has reached the best and final offer (BAFO) stage with two teams – Dexia, ING and Goldman Sachs, and HSBC, Citigroup and KBC – still in the running for the arranging mandate: ABN Amro with Defpa were dropped from the first offers received in June.

The project is being implemented by Beheersmaatschappij Antwerpen Mobiel (BAM) – a special purpose company fully owned by the Flemish region and not to be confused with Dutch contractor Royal BAM – with Deloitte & Touche as financial adviser, Stibbe/Herbert Smith/Gleiss Lutz providing legal counsel and TV Sam as technical adviser.

The Masterplan is a unique twist on traditional European PPP financing. Funding for all projects in the programme will be raised as a single financing (although there are actually two financing phases) and backed by revenues from the Liefkenshoek (road) Tunnel – which was transferred to BAM in 2004 and subsequently refinanced – and the Oosterweel Link when operational in 2011-12.

The programme extends to 16 major projects (the Liefkenshoek Rail Tunnel and around Eu300 million in DBFM contracts from Lijninvest are separate) which include the widening of the Albert Canal for goods traffic, the renovation of sea locks, the extension of tram lines, redesign of the Leien Boulevard and the opening up of the left bank North, the Oosterweel Link and upgrades to the Singel (Antwerp ringroad). Sector spend is Eu2.3 billion on roads, Eu121 million on harbour locks, Eu180 million on the Albert Canal and Eu690 million on public transport (fixed assets plus some trams) – a total of Eu3.291 billion of which the majority will be debt financed.

The scheme is designed to meet Antwerp's growing transport demand, which has begun to outstrip the capacity of the existing network. According to traffic figures from Moto, independently audited by Faber Maunsell, Antwerp's freight traffic – 30% of which is from or for neighbouring countries – is forecast to rise by 25% between 2001-2010, and 40% between 2001-2020. Around 145,000 vehicles a day use the Kennedy Tunnel, which is more than its original design capacity, and given that 25% of the 250,000 vehicles using Antwerp's major roads daily are lorries, the predicted increase in freight traffic will cause gridlock.

The project features a number of changes to traffic flow that should give lenders comfort. Under a master agreement with the Flemish government the toll-free Kennedy Tunnel will be closed to heavy goods vehicles (HGV) forcing that traffic into the tolled Oosterweel Link. The government has also agreed to no alternative River Skelt crossings.

Integral to the overall financing is the future revenue from the Oosterweel project, from which tolls are expected to far exceed the project's debt service. The deal is being procured separately and has a sole BAFO from the THV Noriant consortium – comprising Vinci, CFE, Besix, Dredging International, Cordeel, Victor Buyck and Fabricom GTI with Dexia as financial advisor.

The 39-year Oosterweel DBFM concession could run to as much as Eu1.85 billion – a major portion of the Eu2.3 billion Masterplan spend on roads. The EIB is putting up Eu700 million for the project, which is also part of the TENs programme. BAM will contribute 80% of Oosterweel costs – on an 80/20 debt-to-equity basis – in the form of milestone payments to the project company during the construction period 2008-2012. The remaining 20% of capex will be financed seperately by Noriant as a mixture of debt and equity.

The BAM milestone payments are covered by a counter guarantee from the project company's financiers to BAM's lenders until the end of construction. There is also a parent guarantee to BAM from the Flemish region to cover the 20% equity until start of operations.
After construction the deal reverts to 35 years of maintenance and availability payments for 20% of the capital costs. Consequently the project sponsors are taking construction, maintenance and availability risk while BAM and its lenders assume the traffic risk.

A decision on the shape of the total Antwerp financing has yet to be taken. The deal will be inflation-linked and is likely to feature wrapped bank and/or bond debt: BAM has given the two bidding groups the right to enter into agreements with a maximum of two monolines, and retains the right to have the bidders tender 30%-50% of the total financing among monolines.

There are two phases to the financing: One on the basis of forecast traffic figures and toll revenues; and the second in 2012 on the basis of proven traffic and debt service ratios after the opening of the Oosterweel Link.

To give Oosterweel senior lenders comfort, given the recourse of the other projects to the Oosterweel and Liefkenshoek income streams, the financing tranches for all non-Oosterweel projects come with a ramp-up guarantee until 2011 from the Flemish region.

Given the guarantees, and despite the novel multi-layered risk in the structure, the debt should not have difficulty finding a home. But whether the total cost of Eu3.291 bilion is a realistic figure for such an ambitious project, particularly given rising EPC costs worldwide, is uncertain. The project is capped and will be fixed cost – so smaller projects could be dropped if capex starts to exceed the budget.

Antwerp Masterplan & Oosterweel Link
Status: Both at BAFO
Total cost: Eu3.291 billion
Oosterweel sponsor: Noriant
Masterplan sponsor: BAM
Masterplan competing financial BAFOs: Dexia, ING, Goldman Sachs; HSBC, Citigroup, KBC
Financial adviser to BAM: Deloitte & Touche
Legal counsel: Stibbe Simont, Herbert Smith, Gleiss Lutz
Technical adviser to BAM: TV Sam
Insurance: Marsh