The expansion at Spanish transport infrastructure developer Cintra has been meteoric in the past 12 months. And despite the best efforts of many US project bankers to ignore the potential for US public-private-partnerships (PPP), much of that expansion has come from the US market ? all based around PPP and all funded by European lenders.

In the past month alone Cintra has signed and solidified, respectively, concessions for two of the biggest transport PPP deals in the world ? the $1.83 billion 99-year lease for the Chicago Skyway toll bridge (a joint venture with ex-Cintra shareholder Macquarie Infrastructure Group) and Trans Texas Corridor 35 (not a true concession but a strategic partnership with preferential rights to a portion of $6 billion of concessions over the next five years).

In addition to the new US concessions, Cintra has interests in 16 tolls spread across Canada, Chile, Portugal, Spain and Ireland, with a 50%-plus stake in 15 of them and a controlling stake in the other two.

The company's strategy is based on growth, long-term internal rates of return (IRR) and keeping the holding company debt remote. With a 73-year weighted average concession life across its portfolio and further expansion plans, the majority of profits in the short term will be reinvested with only small dividends paid out.

Keep debt remote and grow

Cintra's debt strategy is to leverage non-recourse to the max at project company level ? Cintra has around Eu5 billion in non recourse debt across its project vehicles ? and keep holding company debt to an absolute minimum: Four years ago Cintra had Eu450 million of debt at holding company level ? today it has none.

The whole structure is effectively a growth machine, designed to feed cashflows back to the debt free holding company for reinvestment as equity in new projects.

The company's funding strategy is mirrored in its actions. Cintra has often been first into a new market and done some contentious deals.

The Cintra-MIG joint venture came in with the highest bid for Chicago Skyway, prompting some analysts to claim that it paid too much. Clearly the banks that subsequently underwrote the $1.19 billion nine-year loan agreements backing the deal - Santander Central Hispano (SCH), Calyon, BBVA and Depfa - disagreed.

Similarly, Cintra's N4/N6 Kilcock-Kinnegad real toll road - the first major project in Ireland's ambitious public-private partnership (PPP) inter-urban roads programme - was a contentious deal from start to finish.

The project spawned a variety of rumours: the monolines would not touch a bond; the risk position of the NRA was unreasonable (PPP without the partnership); the traffic forecasting was wrong; the pricing was too cheap for a first time deal and it would never syndicate.

The reality is that the Eu235 million ($306 million) debt, lead arranged by BBVA and SCH with an EIB guarantee up to Eu130 million, syndicated with a reasonable take-up a few months after close ? Banco Opi, BPI and ICO all took a piece. And the template and pricing benchmark set by he N4/N6 has proved a workable basis for future deals ? notably the N1/M1, sponsored by Celtic Roads.

In addition to often being the first into a market, Cintra has also been first to embrace new financial structures at project level. In October 2004 Cintra closed a UF23.1 million ($565 million) issue of bonds for its Autopista del Maipo concession in Chile. The deal is the first time that the risk-sharing mecanismo de distribución de ingresos (MDI) has been implemented on a toll road structure, and the first time a shelf registration has been used for a Chilean infrastructure financing.

Arranged by ABN Amro with BBVA as placement agent, and wrapped by MBIA, the deal sold well with the 19-year $175 million bond, $450 million shelf and $60 million standby facility coming in at a 4.69% coupon.

Cintra also continues to bid aggressively for European projects ? its hit rate is 30%.

In Greece Cintra has prequalified for four projects; in Finland it is prequalified on the E18; it also has bids in for Grande Lisboa in Portugal and the Eu250-300 million Sao Miguel road in the Azores ? although neither deal is likely to be awarded for some time due to the uncertain political climate in Portugal (for more details on Portuguese project sector search ?Big Freeze? on www.projectfinancemegazine.com).

In Ireland, having successfully closed N4/N6, Cintra's joint venture with SIAC, Eurolink, is competing for the M50 upgrade PPP with Celtic Roads Group (comprising National Toll Roads, HBG Ascon, Dragados, National Pension Reserve Fund) and on the circa Eu500 million Clonee-Kells.

In addition, Cintra is in parallel BAFO negotiations against another bidder for the A4 in Poland. And most recently, in December, Cintra put in a bid for the Eu1 billion Asti-Cuneo real toll in Italy. Cintra is advised by Macquarie and has backing from BBVA, BNL and SG. The other two bidders for the deal are Astaldi with Vianini, and SALT (Grupo Gavio).

To fund its future equity investment above and beyond its earnings, Cintra has a number of options, according to Jorge Gil, head of project finance, and Paco Clemente, chief financial officer. ?Of our 17 established concessions only three have refinancing gains sharing agreements and as the concessions age there is room for more leverage on some of the older ones,? says Gil. Alternatively ? we could divest mature assets ? that divestiture would be 100% because we only create value when we have a controlling stake,? adds Clemente.

Looking for more funding via more share issuance looks unlikely. Despite Cintra's high profile deals and a buzz in the stock market when its IPO was announced early in 2004, Cintra's initial public offering (IPO) in October was slow to take.

It was not until 7 January that Cintra shares closed for the first time above the Eu8.24 per share price of the IPO, and on day one the stock fell actually to Eu7.7, forcing underwriters Grupo Santander, Merrill Lynch Citigroup and BBVA to buy back stock to stabilise the price.

The stock did not fly for a number of reasons. At the time of the IPO Cintra had yet to sign Chicago Skyway and Trans Texas Corridor 35, and the company's high profile Highway 407 Canada toll road was still languishing in the Canadian courts in an argument with the Quebec government over the sponsor's ability to increase toll rates.

Consequently the IPO was launched in a twilight zone ? the difference between what Cintra perceived it would be worth in the very near future and the Eu3.8 billion valuation that analysts claimed gave very little room for any gain.

Furthermore, Macquarie, which had taken a 40% stake in Cintra for Eu816 million in 2001, was exiting via the IPO (apart from a small 13% share in Highway 407) and had a preset target of Eu1.01 billion ? which it got.

Cintra won the Highway 407 battle on January 6 and the next day shares climbed to Eu8.54. The City of Chicago was wired the $1.83 billion for the Chicago Skyway concession on January 24 and the following week Cintra firmed up its agreement with TexDoT for a minimum of $7 billion of projects over the next five years and preferred contractor status for the next 50 years.

Cintra shares are currently trading at between Eu9.0-Eu9.2 and broke the Eu9 barrier at the end of January.

US ambitions

Both Cintra and MIG, which pioneered the PPP concept in the US two years ago with the $450 million SR125 San Diego Expressway financing, look set to dominate the potentially vast US PPP transport market.

And the funding of Chicago Skyway demonstrates serious European, if not US, bank appetite for US infrastructure. The deal presented Cintra with ?a number of financing options ? wrapped bonds, bank debt and even tax-exempt bonds. We dropped the tax-exempt idea early on because of the lack of control ? you are the sub-debt and not the shareholder ? therefore you don't get the upside,? says Nicolas Rubio, technical and business development director. ?The wrapped bond looked better, but for speed we went for a bank solution to meet Chicago's deadline,? adds Gil.

Debt for the 99-year lease was structured in three tranches as a 9-year bullet to keep annual debt service coverage ratios high and with a view to refinancing in the capital markets at a later date.

The three tranches ? $1 billion A tranche, $110 liquidity facility and $80 million capex ? priced at 125bp for years 1-5, 150bp for years 6-7 and 175bp for years 8-9. Citigroup has been working on a bond solution for no fee and a $1.4-1.5 billion wrapped deal will probably materialise in the next two years.

The Chicago Skyway has sent ripples through US public entities with already tolled assets ? a $1.83 billion payment upfront for Chicago to invest as it pleases does not need PR to have an impact.

The PPP concept has been slow to catch on in the US ? partly because most US transport development cash is raised by the public transport entities through tax exempt bonds, and partly because US banks will not lend at the competitive long-term tenors and pricing that have developed in the European PPP lending market.

Chicago sends ripples

But attitudes at US public sector entities are changing. New Jersey Governor Richard Codey has recently floated the idea of leasing or selling the New Jersey Turnpike and two other toll roads to help with its budget problems.

The tax exempt bond market is predicted to hit a ceiling this year and in December Congress received a Department of Transportation (DoT) report outlining potential changes to legislation to facilitate PPP. Although much of the report is devoted to PPP in the general contractor sense, both Chicago Skyway and SR125, which also included TIFIA funding, are cited as potential templates.

Most interestingly, the report contains a proposal for tax-exempt bonds for private sector partners in US PPPs up to a maximum of $15 billion total issuance for the whole sector per year, and a number of different methods that might be employed to combine private sector lending with TIFIA loans.

Cintra's strategic partnership with TexDoT is unlike any deal to date in any transport sector. Cintra has a 50-year concession to advise TexDoT at an annual fee of $3.5million (on which Cintra will make a loss) on a total investment requirement of up to $37 billion in the development of multi-use transport corridor TTC-35. The deal allows TexDoT to award projects without going through a procurement process and in the short term alone gives Cintra preferential rights to a portion of $6 billion of concessions of its choice over the next five years.

Cintra has already identified the following as self-financing projects: the $710 million SH 130; the $1.793 billion Dallas South East Connector; the $775 million Dallas North East Connector; the $986 million Georgetown-Temple South East Connector and the $1.694 billion Temple-Dallas South East Connector.

In addition to the TexDoT concession, Cintra has prequalified along with Peter Kewit, Washington Group and Fluor for the Dallas-Fort Worth Highway (which is not part of TTC-35). The project comprises tolled lanes alongside free service lands and will be in three phases. A total investment of around $1 billion is required and the tender, a one shot process, will be in late 2005.

Cintra is a sharp concession developer and its exclusive relationship with 62% owner and contractor Ferrovial works well: witness the incredibly low pricing obtained on the Ocana La Roda real toll in Spain last August (for more details search ?Ocana? on www.projectfinancemagazine.com). If US banks do not start courting it with the same passion as European banks, given its TexDoT mandate, they are almost certain to miss out on the biggest transport PPP market at the moment ? their own.