The Eu1.6 billion ($1.85 billion) project financing backing the Sacyr-led consortium's acquisition of Spanish state-owned toll road company Empresa Nacional de Autopistas (ENA) signed on October 30 - restructured but with ENA's corporate and its debt guarantee ratings withdrawn by Standard & Poor's (S&P).

It is a deal that was rated by everyone but the ratings agencies and it sold well in restructured form. Furthermore, the extra 20bp on the pricing should not detract from the fact that ENA was a neat solution to what could have become major hurdles to syndication.

The ratings agencies first voiced concerns mid-year when Moody's and S&P downgraded ENA to sub-investment grade. The rating agencies were worried by the fact that the project lenders would have seniority over the Eu754 million owed to existing unsecured bondholders across the ENA concession companies that were the subject of the original rating.

But the issue was more cultural than real. The first ENA offering comprised two 22-year tranches - Eu400 million at 125bp over to refinance existing ENA concession company debt (ENA holds four toll road concessions totalling 472.3km) and Eu1.2 billion at 150bp to fund the buy-out of the holding company.

The 22-year tenor implied a capital markets refinancing - which was in fact the plan - at which point the sponsors would have to tap the same retail investor base that had bought the ENA concession bonds. It was therefore in no one's interest to alienate the existing bondholders - a fact that the ratings agencies wanted in black and white in the form of ringfencing.

And ringfencing is what they got. In ENA's second incarnation - which ironically owes a tacit acknowledgement to structures put forward by some of the losing bidders - bondholders have seniority over project lenders.

Furthermore, local bank worries over long-term lending were calmed with a seven-year term and an extra 20bp in pricing over the shorter period: at the time the local Spanish banks were voicing concerns over the capital adequacy ratios being introduced under Basel II banking reform which make long-term debt more difficult to offer given the expected terms of set aside provisions.

The new structure comprises a Eu1.2 billion seven-year term loan to acquire the holding company, priced at 170bp for the first five years (the concessions will legally be allowed to merge at end of year five when refinancing is most likely), rising to 190bp thereafter.

There is also a Eu400 million seven-year revolving credit for the concession companies' debt priced at 145bp. Both tranches are structured as bullet repayments and while there is a no dividend to the shareholders and a cash-sweep from day one on the Eu1.2 billion tranche, the short tenor and seniority of the bondholders means there will be a large amount of outstanding debt to pay in five or seven years, making refinancing a must.

Consequently the downgrade did not trouble the would-be project lenders - particularly given a 15 to 20-year old existing income stream to analyse and that most of the group's motorways are now fully operational and in use. And the lead arrangers - Santander Central Hispano (SCH), BBVA, Credit Agricole Indosuez (CAI) and Ahorro Corporacion - had also already got sub-underwriting commitments from three banks before the ratings bust up.

Despite the ratings agencies' inability to get comfortable with ENA, the banks could not get enough of it - 41 takers in total. And given the bullet repayment structures there are clearly no worries over ENA creditworthiness - if there were, the banks would have run from the refinancing risk.

The same confidence is true of the controversial asking price. At the beginning of the year many estimates valued the company as low as Eu600 million. On 29 April 2003, concession awarder Sociedad Estatal de Participaciones Industriales (Sepi), advised by BBVA and with independent valuation from PricewaterhouseCoopers, announced that the minimum price was Eu1.1 billion. And although the Acesa-Brisa group pulled out at the last minute due to concerns that the price was excessive, four competing consortia - led by Acciona-FFC, Sacyr, Ferrovial and OHL respectively - presented bids.

Despite winning with a bid of Eu1.586 billion, Sacyr ended up paying Eu1.622 billion due to the increase in ENA's capital and reserves between January and September 2003.

Did Sacyr pay too much for both the company and the debt given pricing on the Radiale 4 mini-perm earlier in the year was 130bp? No - this was a strategic buy with a debt price designed to ensure success. According to Sacyr, EBITDA from ENA's concessions is expected to rise by between 60%-70% at the end of the current seven year financing. And the income that ENA will generate over the lifetime of its concessions will amount to Eu25.8 billion giving a rate of return on capital invested of 10%.

Empresa Nacional de Autopistas

Status: signed 30 October 2003

Description: Eu1.6 billion acquisition financing of Spanish state-owned toll road company ENA

Concession awarder: Sepi

Independent valuation: PricewaterhouseCoopers

Sponsors: Sacyr (50%); Santander Central Hispano (SCH) (20%), Torreal (5%), Caixanova, Corporacion (10%) CaixaGalicia (10%), Caja de Ahorros El Monte (5%)

Mandated lead arrangers/bookrunners:

SCH (agent); Ahorro Corporacion; BBVA; Credit Agricole Indosuez

Mandated lead arrangers: BNP Paribas; Caja Madrid;

Bank of Scotland; La Caixa; Fortis Bank; KfW

Lead managers: Banesto; Banco Sabadell; Dexia Sabadell; Banco Pastor

Managers: Banco Guipuzcoano; BPI; Banco Popular Espanol; Caixa Galicia; CDC Ixis; DVB Bank; Helaba; KBC Bank; Natexis; and 18 caja (Spanish savings banks).

Legal counsel to lenders: Garrigues

Legal counsel to sponsors: Gomez Acebo y Pombo