SRCII: First in general

Italy has a peculiar corpus of procurement law. On the one hand it is often anachronistic ? the only other country that gives similar pre-emption rights afforded to a promotore is the Philippines ? and on the other it can be a hot bed of innovation. The general contractor (GC) scheme is an example of the latter. Still, for the phase two of the Salerno Reggio Calabria motorway, several legal holes had to be filled before financing of the first GC scheme could be pulled together.

The GC scheme is more than purely construction financing, with the onus on the contractor to design and obtain the requisite permits. Design-build-finance-transfer (DBFT) schemes such as GC do not have an operating concession, so the emphasis on the upside of PPP is on the efficiency of the private contractor argument rather than merely spreading the capital cost over 20 or 30 years.

The project entails the construction and refurbishment of certain sections of the A3 between Gioia Tauro and Scilla, including the construction of a 450m bridge.

The general contractor is an SPV comprising two Italian constructors: Impregilo (51%) and Condotte d'Acqua (49%). Depfa advised Condotte in May 2002 on phase one of the highway project ? a concession that was ultimately won by CMC, backed by BancaOPI and Dexia, but has yet to reach financial close ? and thus has had a run up to assess the issues surrounding the scheme.

Depfa and Infrastrutture have 50-50 underwritten Eu300 million ($380 million). The loan matures in January 2009, but with an automatic extension mechanism in the case of force majeure or other specified problems. Both institutions are likely to hold a significant chunk of the debt, with a limited syndication anticipated to be complete by the end of February. Hedging is in place and conditions precedent are working through.

That the deal was financed successfully, despite the fact more specific legislation is expected to flesh out the originating law, the Legge Obiettivo, sends out a clear message to the Italian project finance community: GC schemes are bankable.

One of the major contentions regarding the GC scheme is that the payments due on the achievement of predetermined milestones in the construction, owed by the awarding public body, are not legally recognised credits ? they are interim payments recognised formally only on completion. There was also concern over the timely payments of these credits.

Yet Depfa and Infrastrutture have gained comfort by structuring flexibility into the transaction to allow for the early or late payment of invoices. More challenging was the relationship with the awarding public body, ANAS ? the entity responsible for managing the road network.

The financing represents about 30% of an original tender value that ANAS will reimburse in full only at completion. The total project value is in the region of Eu900 million. (search ?Salerno? for the November 2004 Deal Analysis at www.projectfinancemagazinecom)

Depfa has SRC phase III next in the pipeline, again with the same constructors. Perhaps with a touch of spite and pang of jealousy, bankers outside the deal have claimed that SRCII would not have been banked without ISPA's involvement, and some have gone so far as to suggest ISPA is providing a guarantee. But ISPA is in fact simply a pari passu lender.

SRCIII will not involve ISPA, so Depfa will solely underwrite the expected Eu225 million financing.

Autostrada Salerno Reggio Calabria
Size: Eu300 million
Status: Closed 26 October 2004, to be syndicated in 2005, memos with selected banks by February 2005
Location: Salerno Reggio Calabria, Italy
Description: Phase II of a five-stage project. This phase involves the refurbishment and addition of extra lanes of sections of the A3 between Gioia Tauro and Scilla
Constructors: Impregilo (51%) and Condotte d'Acqua (49%)
Arrangers: Depfa; Infrastrutture SpA
Tenor: Until January 2009, with automatic extension mechanism in the event of force majeure
Legal counsel to lenders: Linklaters, Gianni Origoni Grippo & Partners
Technical: Proto
Insurance: Marsh