Autocesta Zagreb-Macelj: Guaranteed to the max

The Eu312 million limited recourse debt for the 28-year Autocesta Zagreb-Macelj (AZM) toll motorway public-private-partnership (PPP) concession set some new benchmarks for Croatian infrastructure financing in 2004 ? most notably in terms of tenor and multi-sourced debt.

The commercial tenor is only three years shorter than the Bina Istra 1B road bond closed in 2003 ? 16 years rather than 19 ? which is surprising given that the bond market normally offers significantly longer tenors than bank debt.

The financing was structured to benefit to the maximum from commercial and political risk (PRI) cover from the Federal Republic of Germany, and a quasi-equity GKA facility. The cover, for around two-thirds of the facilities, made longer grace periods and longer tenors for the respective debt facilities bankable and pricing more attractive.

Lead arranged by Bank Austria Creditanstalt, HypoVereinsbank, KfW and HSH-Nordbank, the Eu312 million debt comprises a Eu100 million Hermes facility (tenor 15 years), a Eu100 million Garantie für Kapitalanlagen im Ausland (GKA) facility (tenor 17 years), a Eu100 million long-term commercial facility and a Eu12 million dual-currency working capital facility (tenor 16 years).

The repayment schedules were structured to reflect the progressive cash flow build-up of the project. While the Hermes and the long-term commercial facility provide for fixed repayment amounts, the GKA facility is repaid according to the success of the project, in line with the quasi-equity character of the GKA facility.

The Hermes facility provides for 95% commercial and political risk cover for eligible goods and services. The GKA facility is enhanced by a guarantee in respect of 95% of certain political risks and for situations in which the Republic of Croatia does not perform certain contractual obligations to the project company, AZM, including failure by Croatia to pay traffic support arrangements as well as debt repayment in the event of termination of the concession.

It is a condition of the eligibility for the GKA guarantee that a loan has to include certain quasi-equity characteristics. Accordingly, the GKA facility was structured to incorporate longer grace periods for borrower defaults, greater flexibility over the capitalization of interest and a repayment scheme based on a cash sweep mechanism (including fixed minimum repayments).

The GKA lenders are secured pari passu with the other senior lenders, however as to repayment, the GKA lenders rank behind Hermes and the long-term commercial and working capital facility lenders, but before the Republic of Croatia and the private sponsors.

In short, Zagreb-Macelj is a fairly watertight risk prospect. The project is sponsored 51% by Walter Bau and Strabag through joint venture Walter Concession, and 49% by the Croatian state. The project involves an upgrade and extension of 60km of motorway (40km of which is old road) from the Slovenian border at Macelj to the Zagreb ring ? completion of the motorway will be in stages until the end of April 2007 ? and has the added benefit of TENs status.

The existing stretch has been tolled in the past by operator Hrvatska Autoceste and therefore comes with a traffic history and existing revenues. In addition, the Croatian government has put up significant revenue support payments, a top-up mechanism if maintenance costs post construction exceed reserve accounts and a debt termination amount if the concession ends abruptly ? all counter guaranteed by the GKA.

Theoretically some risk has been passed down from the project company to the contractor (Walter Motorway, a special purpose vehicle owned by Walter Bau/Dywidag International and Strabag International) and the operator (Trans-Ceste, a subsidiary of Transroute International).

However, the majority of residual risks remain with the project company, including the non-performance of the operator; the risk that the costs of extraordinary maintenance exceed the amounts budgeted; and the risk of losses arising from a non-political force majeure.

Although pricing for the deal has never been officially disclosed, overall cost of financing is rumoured to have been higher than the European norm for an upgrade project of this type ? primarily because of the GKA.

But the GKA offsets a lot of Croatian risk, and despite the fact that perceptions of Croatian risk are changing as it becomes eligible for the next round of country's to join the EU, as one banker puts it, ?at that time the deal would not have got done without all the guarantees.?

Autocesta Zagreb-Macelj
Status: Signed 20 July 2004; syndicated 31August 2004
Description: Upgrade and extension of existing Croatian toll road
Debt: Eu312 million
Sponsors: Walter Bau; Strabag; Croatian government
Financial advisers: Bank Gesellschaft Berlin; Fortis Savjetovanje
Mandated lead arrangers: BankAustria Creditanstalt; HypoVereinsbank; KfW; HSH-Nordbank
Lead arrangers: Banca Opi; Calyon; Depfa; Dexia; Erste Bank; Fortis; KBC; Kommunalkredit Austria; Natexis; Nord/LB; Oesterreichische Volksbank; Zagrebacka Banka; HVB Splitska banka; Dexia; KBC
Legal counsel to sponsors: Freshfields Bruckhaus Deringer and Zuric i Partneri (private); Allen & Overy; Hanzekovic and Radakovic and Partners (government)
Legal counsel to lenders: Clifford Chance; Bogdanovic, Dolicki & Partneri