Cintra has completed the acquisition and refinancing of the Autopista del Bosque toll road concession in Chile. The financing is the latest in the country to benefit from the application of the MDI structure. It also cements Cintra's control of the southern extremes of the Ruta 5, Chile's backbone and its designation for the Pan-American Highway.

Autopista del Bosque is the concession for a 160km stretch of Ruta 5 between Chillan and Collipuli in Chile. The original holder of the concession was Mexican construction concern Tribasa, which was awarded the contract in 1997, and promptly encountered financial a difficulties because of its underperforming Mexican road concessions.

Tribasa sold the concession to France's GTM in 1999, in an attempt to improve its liquidity situation, and GTM, which merged with Vinci in 2000, took over developing the concession. Vinci's background and expertise was up to bringing the project into operation, although the concession was its only infrastructure asset in Chile.

Vinci closed a UF7.8 million ($210 million) local currency issue in the first half of 2001, wrapped by XL and underwritten by Santander. These bonds priced for a coupon of 6.3%, and were XL's second deal in the country – the first, Collipulli-Temuco, closed in 2000. At the time XL had a double-A rating from Moody's, but the break-up of MBIA and Ambac's infrastructure joint venture allowed XL to gain market share from the two.

Soon, MBIA and XL, which had insured the majority of the road concessions in Chile, had to face the downturn that the country entered in the early part of the decade. Traffic on the Ruta 5 concessions heavily dependent on trade flows and faced with (admittedly slow) competition from free routes, did not ramp up as quickly as planned.

Bosque was as much a victim of the slump as Cintra's neighbouring concessions. Vinci worked in parallel with its fellow concessionaires to work on a restructuring solution with the Ministry of Public Works (MOP, after its Spanish initials). The advantage it held, like its peers, was the MOP's broad desire to protect the interests of the concession's bondholders, which were primarily domestic pension funds with a sizeable exposure to the concession programme.

The restructuring used the mecanismo de distribucion de ingresos (MDI), which offers the owner of a struggling concession, and its lenders, the certainty of a return, although it tends to place constraints on the maximum returns available to sponsors. Cintra has previously availed itself of the MDI during the refinancings of its Maipo and Talca-Chillan concessions. The MDI typically carries either a fee or the promise of additional works, for which a sponsor will be partially compensated.

Cintra first rolled out the MDI-based financing on the Autopista del Maipo concession, a $565 million equivalent local currency shelf registration, on 14 October 2004. The process coincided with the Cintra IPO, and the process was widely regarded in the PPP market as part of the attempt to clean up the sponsor's books before the sale. The MDI, in essence, extends the length of a concession for a period commensurate with a shortfall in revenues that do not allow a concession holder to reach a fixed, and discounted, return.

The process works, however, for assets that Cintra is thinking of buying. Vinci had decided that its lone concession in Chile did not offer it and attractive enough return on its own, and recognised that Cintra would do more with the asset. Buyer and seller have worked in parallel for the past year on the MDI negotiations, sale and refinancing.

The Bosque concession ranks as one of the more generous to sponsors in Chile. It already features a minimum revenue guarantee (MRG), which provides a baseline revenue, and therefore a degree of certainty to debt holders. The concession holder also has the ability to raise tolls on the stretch by 25%, subject to a maximum yearly increase of 5%, in addition to its existing ability to raise tolls in step with inflation.

And Chile's toll road sector is recovering. As Moody's, in its report on the Bosque concession, notes, traffic growth countrywide has averaged 4.7% 1993-2002. Even if sponsors allow for the recent downturn, and accepting that growth in traffic has been much more pronounced in urban areas, particularly in Santiago, the road's prospects are good. Bosque services the port of Concepcion, and is located in the middle of a region enjoying strong growth in the agricultural and forestry sectors.

The new financing consists of an additional UF1.5 million ($52 million) of bonds, underwritten by ABN Amro and local brokerage Celfin and insured by XL Capital Assurance, which has, since the original financing, been upgraded to AAA by the three main ratings agencies. The refinancing also included the substitution of a new guarantee from XL for the slightly lower-rated wrap from 2001, meaning that all the bonds are now rated triple-A from both Moody's and Standard & Poor's. Persuading bondholders to accept the new wrap was not difficult, especially since the existing debt carries a much higher coupon that those now prevalent in the market.

The new bonds have a coupon of 3.32%, a 24-year maturity, and are pari passu with the existing debt. ABN Amro provides an evergreen, or renewable, letter of credit, to support any shortfalls in revenue at the concession between when debt needs to be serviced and when the MOP meets its obligations under the minimum revenue guarantee. XL guarantees this letter of credit. The covenant package restricts the distributions available to Cintra before the bonds mature.

The sale was approved on 30 June, the transfer of the concession took place on 31 October, for a cash payment of Eu8.6 million ($11.2 million), and the refinancing closed on 17 November. Cintra will now be able to realise significant savings from controlling operations and maintenance on an unbroken stretch of highway, although it has pledged to provide limited support in the event that these costs are higher than expected. Through the implementation of the MRG and MDI, the Chilean government has captured much of the improvement in conditions that might take place on the road.

Autopista del Bosque
Status: Refinancing closed 17 November
Size: UF1.5 million ($52 million)
Location: Chile
Description: Additional financing for, and refinancing of, 160km toll road
Sponsor: Cintra
Debt: Existing UF7.8 million, new bonds of UF1.5 million
Monoline: XL Capital Assurance
Underwriters: ABN Amro, Celfin
Letter of credit provider: ABN Amro
Lender legal counsel: Debevoise & Plimpton (international), Claro (local)
Sponsor legal counsel: White & Case (international), Estudio Morales (local)
Traffic consultant: Steer Davies Gleave