Santander has closed syndication on the Ps2.62 billion ($245 million) debt for the Salitillo-Monterrey toll road in Mexico. The project is the first in the country to use electronic tolling technology, which posed unique technical challenges, but is likely to influence forthcoming road deals.

Spanish operator Isolux holds the Ps3.46 billion concession, its first outside Spain, through its subsidiary Corsán-Corviam, and special purpose vehicle Isolux Corsán Concessiones. Mexico's department of transportation and communications (Secretara de Comunicaciones y Transportes, or SCT) awarded the 115km greenfield concession on 17 November 2006.

The debt proved popular in syndication, and was 1.5x oversubscribed. Seven banks participated: Santander was mandated lead arranger (MLA) and bookrunner, with a commitment of Ps503 million. MLA Imbursa also took Ps503 million, while MLAs ING and Dexia each committed to Ps360 million, and Banobras also took Ps360 million. NordLB took Ps330 million, and Caixa Galicia took Ps200 million.

The facility has an 18-year tenor, and features two tranches. The senior debt is Ps2.33 billion and has a 2-year disbursement period to fund the construction. There is a 2-year grace period during ramp-up, and a 14-year amortisation schedule. The pricing on the senior debt is 145bp over the Mexico inter-bank rate (TIIE) for the first 4 years, increasing to 165bp for years 5 to 8, hikes again to 186bp in years 9 to 12, then to 195bp for the last 2 years.

Santander and Imbursa were also underwriters on a 2-year subordinated loan of Ps286 million, to become available at the end of the 21-month construction period. This facility is intended to support the project during its 2-year ramp-up period and is priced at 250bp.

The concession will run for 35 years, and includes a 21-month construction phase. Isolux is believed to be providing 80% of the equity, which in turn accounts for 35% of the total project cost. Isolux is partnered with two construction companies, Mexican firm Coconel and Spanish firm Elsamex. Elsamex is responsible for construction, operation and maintenance, and also provided 20% of the project's equity.

The lender's legal counsel was Galicia & Robles, while Isolux used internal counsel. BNP Paribas advised Isolux during the bidding process. Cal & Mayor conducted the traffic study for the sponsor, which was audited by SYT Consulting on behalf of the banks. The technical adviser was Spanish engineering firm ProIntec.

Construction on the first section of the road, a 55km section near Monterrey, began on 9 April 2007. The concessionaire is responsible for the construction of a 95.11km continuous section of highway, which runs between the municipalities of Santa Catarina and Garcia in the state of Nuevo León, to Ramos Arizpe and Saltillo in the state of Coahuila; it will also construct a small section of the road in Saltillo city.

The remaining middle section of the highway is a 14km bypass between Libramiento Norponiente and Saltillo, and is to be constructed by the SCT, and then transferred to the concessionaire once the work has been completed. The SCT is also responsible for the environmental licensing of the project, and for the expropriation of the rights of way, which is 100 metres wide on the highway, and 60 metres wide in the Libramiento section.

The tolled road will run parallel with an existing, state-owned free highway, in accordance with Mexican law. However, the existing highway is considered by many drivers to be unsafe and ill-maintained, and has a renowned high accident rate. Part of the impetus for the new construction was a concern for road safety in the business areas and affluent residential areas in Monterrey. Sources familiar with the area do not believe that the existing road will pose overwhelming competition to the new road due to these safety issues. Traffic is currently predicted at 4,500 vehicles per day with 5% to 9% annual growth expected. The road will also be a main artery for heavy-goods traffic.

This deal is one of a number of recent toll concessions in Mexico, but is the first to introduce electronic tolling systems. It will set a precedent for the other imminent highway projects in Mexico, especially the large, forthcoming FARAC concession, and the Rio Verde to Ciudad Valles toll road. The Saltillo-Monterrey deal is the concessionaire's first experience of civic works outside Spain, though the partnership with Mexican construction companies will facilitate Isolux's adaptation to the local market.

However, the new tolling mechanisms will pose something of a challenge, since the concessionaire is to introduce automatic tolling and tele-tolls, neither of which has been used before in Mexico. Previously, where tolls have been used, they were operated by staffed booths, and featured a nominal cash payment.

Competition for the concession was strong; Isolux beat proponents Spanish firms OHL, and FCC, and a particularly competitive bid from ICA. This European interest marks a significant development for Mexican concessions, and an even greater cast of international bidders is expected for the FARAC concession.

Isolux Corsán Concessiones
Status: Syndication close May 2007
Size: Ps3.463 billion
Location: Mexico
Description: 30-year DBFO concession for a 115 km toll road
Sponsor: Isolux Corsán-Corviam
Construction cost: Ps2.64 billion
Debt: Ps2.62 billion
Equity: 35%
Mandated lead arrangers: Santander, Imbursa, ING, Dexia
Legal counsel to lenders: Galicia & Robles
Legal counsel to borrower: In-house counsel
Traffic consultant: Cal & Mayor, SYP
Technical and engineering adviser: ProIntec