It has been a long negotiation for arranger Caja Madrid, but the much anticipated combined bond and debt financing for the Eu212 million Autovia de los Vinedos CM400 stage 1 (Tomelloso-Consuegra) greenfield shadow toll road financing has closed.

The deal comprises Eu64.1 million in 23-year bonds and Eu103 million of 26-year EIB debt, both triple-A wrapped by XL Capital and ranking pari passu, and Eu44 million in equity, plus some shareholder sub-debt.
The small bond punches much heavier than its weight in significance. This is the first time a greenfield road in Spain has been successfully bond financed. Although pricing on the wrap has not been disclosed, the savings are significant enough to have satisfied the expectations of lead sponsor Acciona, which is a veteran of the Latin project bond market.

The deal also follows a number of failed bond attempts, including that of its sister deal ? Autovia de los Vinedos stage 2 (Toledo-Consuegra) ? which closed earlier this year, with a straight debt package arranged by Banesto after talks between the sponsors, Dragados and Cyposa, and the ratings agencies broke down.

The ratings are integral to any wrapped bond. Monolines will not wrap bonds rated below investment grade and to date the ratings have not been comfortable with Spanish roads: the Autovia del Camino, project financed in June, was the first and only other Spanish road to get an investment grade rating from Standard & Poor's (S&P). However, and for the first time, both S&P and Moody's have given the deal an investment grade after some heavy stress testing.
Vinedos stage 1 is sponsored by special purpose company AUVISA which is owned by Acciona (42%), Constructora Sarrion (42%) and Caja Castilla la Mancha Corporacion (16%). The project funds the upgrade and construction of 74.5kms of shadow toll road between Tomelloso and Consuegra: increasing from one lane to two, in both directions, a 24km section of the existing CM400 highway and building both a new 42km road and 9km bypass at Tomelloso.

The 30-year DBFO concession was awarded to AUVISA in January 2003 and construction is already underway, with the new road forecast to enter operation in January 2006. The concession is capped after year 25 (2028) from when it can be terminated if the discounted NPV of the shadow toll payments made to that date exceed the revenue forecast in AUVISA's original bid.

Managed by Caja Madrid (also sole financial advisor to the issuer and underwriter and placement agent of the bonds along with Caja Castilla la Mancha) the 23-year bond portion of the deal is fixed rate with a coupon of 4.8%, or 42bp over the sovereign equivalent, and sold predominantly to Spanish investors.

Caja Madrid has also swapped the 26-year EIB debt from floating rate to fixed. And because both the bond and loan are cross-defaulting, the price for the XL wrap is the same on both.

Integral to the monoline wrap is S&Ps' underlying BBB- rating for both tranches. According to S&P the ratings reflect three main risks: AUVISA will not serve a key corridor, with most traffic expected to be local ? forecast initial traffic levels are 5600 a day. The project is also exposed to traffic risk under the shadow toll arrangements; and the financial structure is fairly aggressive, with a back-loaded debt amortization profile that sees around 43% of the debt amortising in a five-year period.

Offsetting these risks however are a number of pluses. The concessionaire is entitled to an upward tariff adjustment equivalent to 100% of Castilla La Mancha's CPI. There is relatively little uncertainty regarding initial traffic, as AUVISA will replace an existing road.

Construction risk is also low. Construction does not involve any major structures, the terrain does not present any difficulties and the sponsors are providing a turnkey wrap.

Most significantly, the project's debt service coverage ratios (DSCR) are adequate for the underlying preliminary rating under the sponsor's base case and also under a range of additional traffic stress scenarios performed by S&P itself: base case is a minimum annual DSCR of 1.3x and an average of 1.8x. In addition, the project benefits from sufficient liquidity in the form of debt service and ratio maintenance reserves that up average DSCR to 1.9x.

Although further greenfield bonds look unlikely in the short term, bank miniperms being the preferred option, there is the possibility of unwrapped bond refinancings of existing concessions. Tranche 1 of the M45 refinancing closed earlier this year with bank debt. Tranche 3 looks set to be the next in line and Caja Madrid is considering a bond.

However the deal is not a straightforward refinancing ? it will involve raising more investment than the existing debt to build further link/slip roads with Central Madrid; negotiating with two different sets of sponsors; and bartering over the link roads between Madrid's regional and central governments. And the arranger concedes that time constraints make a bank debt deal more likely.

Nevertheless, Vinedos has proven that project bonds are viable in Spain and sponsors may start pressuring for them if the economics stack up.

Autovia de los Vinedos stage 1
Status: Closed November 2004
Description: Combined greenfield shadow toll project bond and loan package
Total debt: Eu167 million
Loan: Eu103 million
Bond: Eu64 million
Sponsors: Acciona; Constructora Sarrion; Caja Castilla la Mancha
Issuer: AUVISA
Arranger and financial advisor: Caja Madrid
Multilateral loan provider: EIB
Monoline insurer: XL Capital
Legal counsel to issuer: Gomez Acebo y Pombo
Legal counsel to XL: Garrigues
Legal counsel to EIB: Clifford Chance