Financing and the concession contract for the N1/M1 Dundalk Western Bypass - the second of Ireland's controversial public-private partnership toll road projects to come to market - signed simultaneously on 9 February.
Sponsored by the Celtic Roads consortium - led by Dragados along with Irish toll road operator NTR and Royal BAM subsidiaries Edmund Nuttall and HBG Ascon, the deal is very similar to the N4/N6 toll in 2003 (see Project Finance, February 2004 for details).

Crucially, however, this time part of the project is already built - 43km of existing motorway and toll plazas built by the Irish state south of Dundalk and real tolled and operated since mid 2003 by co-sponsor NTR. Traffic forecasting, a source of contention in the N4/N6, is therefore more predictable.

In addition to the existing stretch the project involves construction of 11km of new motorway and 7km of new link roads inclusive of 12 over/underbridges and a railway bridge.

Lead arranged by Societe Generale (SG) the financing pulled in four co-arrangers - AIB, DEPFA, KBC and ICO - at a tightly priced step up from 110bp during construction (expected to take two years), 120bp until year 10, 135bp during years 10-20 and 150bp thereafter. Tenor is 27 years.

The deal comes with a Eu68 million EIB-guaranteed tranche: the Dundalk scheme is located on the Dublin-Belfast corridor, which has been granted Trans-European Network (TENs) status by the EU. And although initially indirect, the EIB guarantee will be phased in as a direct loan as and when a series of project milestones are met.

Total project debt is Eu145.5 million which breaks down into the Eu68 million EIB tranche; a Eu37 million commercial bank loan; a Eu23 million standby facility for cost overruns; and a Eu17.9 million equity bridge.

Final takes on the senior facilities and equity bridge are: Eu30 million senior debt from SG with Eu6 million for the equity bridge; Eu28 million senior for Depfa with Eu3 million toward the bridge; AIB has put up Eu24 million in senior debt and Eu6 million toward the equity bridge; KBC Eu24 million in senior debt and Eu3 million in the equity bridge; and ICO Eu22 million in senior debt only.

Although the deal benefits from an existing and therefore predictable toll flow, existing toll revenues will not pass to Celtic Roads until completion of the new sections in 2006. During that two-year period 95% of toll revenues will continue to pass to the state. And during the same period Celtic Roads will be operating the existing stretch whilst also upgrading with NTR's Eazy Pass electronic toll collection system.

However, when Celtic Roads begins its 30-year concession proper in 2006, all tolls pass to it with one proviso - the state gets a windfall from a revenue sharing mechanism that kicks in if project traffic levels increase faster than forecast.

Despite the more predictable traffic flows, the N1/M1 has raised its own set of forecasting issues, provisions for which have been structured into the deal.

Additional small equity payments will be put into the project if forecast traffic flows are not met. But given that Celtic Roads' bid requires no state contribution to the construction costs, arguably because the state has already made its contribution in the form of the existing road, the consortium at least must be very confident in the predictions of its US-based traffic forecaster Wilbur Smith Associates.

Lenders are similarly happy with the forecasting after an audit by Arup a bullishness matched by the loan pricing which is in the same ballpark as the 120bp-150bp on the N4/N6 and has a longer tenor - albeit only by two years.

Despite the similarities between the deals there has been some positive movement in the contractual structure and concession awarder the Irish National Roads Authority's (NRA) planning - both major issues with the banks when N4/N6 was in the market.

The NRA is now financed with five-year budgets making long-term commitments more concrete. And a number of grey areas between the awarder and sponsors/lenders have been clarified.

A force majeure definition has been put in place clarifying what insurance risks rest with the private sector and state. The penalty point regime leading to termination has also been made generous to sponsors and lenders alike. The NRA has also clarified its obligations in ensuring adequate access to PPP toll roads via existing connecting routes and is penalised if it fails to meet its obligations. Furthermore, the system for calculating payments to the sponsors and lenders in situations where the sponsor is forced into extra build other than that outlined in the original bid is now clear.

The NRA may have taken a more reasonable approach to negotiating N1/M1, but it has still talked its way into another deal with a lot of risk transfer to the private sector. Those that believed pricing on the N4/N6 was a one-off were wrong. With Waterford going to BAFO and Fermoy going to preferred bidder it looks like N4/N6 was a realistic template.

N1/M1 Dundalk

Western Bypass

Status: Closed 9 February 2004

Description: Financing for Ireland's second PPP toll road project

Project debt: Eu145.5 million

Sponsor: Celtic Roads consortium (ACS-Dragados; NTR; Edmund Nuttall; HBG Ascon

Concession awarder: National Roads Authority (NRA)

Mandated lead arranger: SG

Lead arrangers:

Allied Irish Banking; DePfa; KBC/IIB; Instituto de Credito Oficial (ICO)

Legal counsel to NRA: McCann Fitzgerald (Ireland); Freshfields (international)

Legal counsel to lenders: Norton Rose

Legal counsel to sponsors:

Ashurst Morris Crisp

Traffic forecasting: Wilbur Smith Associates

Forecast review for lenders: Arup