A41: No subsidies

The Eu940 million ($1.1 billion) A41 real toll between Villy and Saint Julien – the first road PPP project in France to be financed in the bank debt market – was the first to demonstrate to the French authorities that there is a big lender appetite for well structured, traffic risk projects. The deal is an important market maker and should herald more greenfield French road PPPs this year and next.

The French Ministry for Transport launched the 55-year concession in December 2004, as the second of three greenfield real toll projects. Adelac, a Bouygues-led consortium, was appointed preferred bidder in May 2005, after being chosen out of a field including Vinci, Cintra, Bilfinger Berger and Eiffage.

All bids had to be underwritten at the submission stage – Adelac was supported by Calyon, HSBC and HBoS. The consortium won the project because it was able to put together an aggressive financial structure that reflected the length of the concession and included the key benefit of not drawing on state subsidies, which were on offer.

Apart from Bouygues, which holds a 23% share in Adelac, the consortium also includes Autoroutes Paris-Rhin-Rhône (APRR) – then a state-owned road operator that has recently been sold to Eiffage and Macquarie – via subsidiary AREA which owns 49.9% of the project. The other members are GFC Construction (9%), DTP Terrassement S.A. (7%), Colas (7%), Losinger Construction (1%), SETEC (2%) and Caisse d'Epargne et de Prévoyance des Alpes (2%).

The financing is geared at an 80:20 debt-equity split, with project debt consisting of four separate tranches.
The senior credit facility is a Eu698 million eight-year mini-perm, which can be extended to 12 years, and is amortised through a single bullet repayment on refinancing. Margins start at 110bp over Euribor during construction, rising to 120bp post-completion. At year eight, margins rise to 140bp and go up to 160bp after 10 years.

There is also an eight-year Eu170.5 million bridging facility until the injection of subordinated debt and equity into the project by the shareholders once the road is completed. The junior funding commitments of the shareholders are secured by parent company guarantees from AREA and Bouygues Construction (for Bouygues subsidiaries) with SETEC's commitment secured by a pledged cash account.

The bridge facility will also cover construction costs until first drawdown on the mini-perm, in mid-2006.
The two other tranches are a Eu40 million VAT facility and a Eu32 million contingency facility. The latter, which is senior debt that could be drawn if traffic levels are lower than forecast, is to be drawn pro-rata, with the sponsors also contributing equity in order to maintain the project's gearing.

Underpinning the financing is the underlying assumption that the project will be refinanced. The concession was awarded to Adelac because it was made clear to the concession awarder that the mini-perm was not designed as a hair-trigger default mechanism. Rather, it reflected the absolute confidence the lenders and sponsors had that the project would be refinanced at year eight.

Exceptionally strong traffic forecasts helped to reinforce this impression. The project, which is scheduled for completion in 2009, involves building a 19km extension of the A41 motorway near the border between France and Switzerland. The work incorporates the construction of a 3km twin-tube tunnel and four viaducts. The area suffers from heavy congestion and is badly in need of the project. The area is also affluent, so the real toll is unlikely to deter users.

Certain assumptions have been agreed between the sponsors and banks, which inform the decision on whether to refinance the debt or extend the mini-perm. One of these is that the refinancing will be index-linked and have a tenor of 40 years. The assumed minimum cover ratio is 1.2x, while the long life average cover ratio is 1.5x. There are also assumed margins, though these have not been disclosed.

The project reached financial close on 24 November 2005 and launched to syndication on 6 February 2006. The MLAs offered tickets of Eu50 million and Eu35 million to 35 banks. Participation fees are 35bp and 25bp. Syndication is expected to close at some point in the week beginning 6 March.

The combination of the A41 financing and the deals backing the privaisation of three state-owned toll road operators (for more details search 'French tolls' on www.projectfinancemagazine.com) is a taster of things to come in the French toll road sector. The market is attracting a range of foreign project lenders: for example, at the end of 2005 BBVA created a dedicated project finance team in Paris. The team's first job is MLA, along with seven others, on Eiffage's debt for the APRR acquisition.

In terms of further road projects, bids are being appraised for the Eu1 billion greenfield A65 real toll project – a 152km motorway linking Bourdeaux to Pau. This project is the last of the three greenfield real toll concessions tendered by the government, of which the A41 was the second (the first was the A19 near Paris, awarded to Vinci, which was financed by corporate debt).

The next wave of projects is likely to be brownfield concessions, based either on real tolls or availability payments. The Eu100 million A88 will probably be the first to tender in the first half of this year on an availability basis.

A41
Status: Closed 24 November 2005
Description: Construction of a 19km 2x2 extension of the A41 motorway between Saint Julien and Villy
Sponsors: Bouygues (23%), APRR AREA (49.9%), GFC Construction (9%), DTP Terrassement S.A. (7%), Colas (7%), Losinger Construction (1%), SETEC (2%), Caisse d'Epargne
et de Prevoyance des Alpes (2%).
Size: Eu940 million ($1.1 billion)
Mandated lead arrangers: Calyon, HSBC, HBoS
Sponsor financial adviser: CDC IXIS
Sponsor legal counsel: Lovells
Lender legal counsel: Freshfields
Borrower technical adviser: Capita Symonds