The Perpignan-Figueras high-speed rail public-private-partnership (PPP) project between France and Spain reached financial close on 10 February. The deal, heavily subsidised by the Spanish and French governments, is the first European joint-nation rail financing since the Channel Tunnel.

Lead arranged by ING, BBVA, Banesto, Caja Madrid, and Royal Bank of Scotland, the Eu532 million ($703 million) commercial debt consists of a Eu410 million 10-year mini-perm and a Eu62 million facility to finance the final state-subsidy payment.

In addition there is a Eu25 million VAT and a Eu10 million 10-year standby facility as well as long term interest rate hedging: CDC Ixis is providing derivatives for the financing.

The debt is priced at 135bp over Euribor during construction and 150bp during operation. The initial tenor is 10 years, with a bullet repayment and undertaking to refinance in 2015, to give an underlying tenor of 35 years.

CDC-Ixis and Banesto acted as co-financial advisers to concessionaire TP Ferro – a 50-50 joint venture between ACS/Dragados and Eiffage. The sponsors are putting up Eu110 million of combined equity.

A syndication strategy is still under discussion – the MLAs are each working on different chapters of the forthcoming information memorandum. In effect the deal got underwritten because it had to be under the terms of the original tender. Had it failed to do so before 17 February the project would have been retendered, an embarrassment all parties had already experienced in 2003 when the original preffered bidder – the Dragados and Bouygues led Euroferro consortium – failed to deliver after attempting a structure backed by monoline FSA.

The 44.5km rail link forms the international section of a high-speed rail network that will carry both passengers and freight traffic. The project, which will be completed in 2009, will reduce journey times between Barcelona and Toulouse by more than 2 hours, avoiding having to change trains to accommodate the different track gauges between France and Spain.

Construction under the Eu1.1 billion turnkey contract began late last year fuelled by subsidies and equity. Construction risk on the project has been dealt with fairly robustly and the construction of an 8.2km tunnel – technically the most risky element – only represents a third of the total contract and is on schedule to be completed within three years.

The concession lasts for 50 years, and consequently the commercial debt comes with 50-year traffic risk. Whether the syndicated financing – expected in late March – will feature risk mitigants is uncertain. However, the deal is heavily government- and EU-backed. Half of the construction cost – Eu550 million – is being subsidised 50-50 by the Spanish and French governments, with the EU putting up 5% of the total project.

The project also has Trans European Network (TENs) status. However, the participation of the EIB is still under negotiation. The bank is almost certain to participate and if its role is not solidified before syndication – either in the form of a direct loan or guarantees – it may be used to take out some of the commercial debt at a later stage.

Perpignan-Figueras
Status: Financial close 10 February 2004
Size: Eu1.1 billion total project cost
Description: Combined subsidy and commercial debt financing for the construction of a Franco-Spanish cross-border high speed rail link.
Project debt: Eu532 million
Sponsors: ACS/Dragados; Eiffage
Co-financial advisers to the the sponsors: Banesto; CDC Ixis
Mandated lead arrangers: BBVA; Caja Madrid; Royal Bank of Scotland; Banesto; ING Bank
Legal counsel to the sponsors: Ashurst Morris Crisp
Legal counsel to the lenders: White & Case; Garrigues
Legal counsel to the concession awarder: Clifford Chance