The project spawned more rumours than a bad hair day at the offices of Hello magazine: 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. All contain elements of truth - all were distorted beyond recognition as the rumours spread.

The reality is that the deal did syndicate 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 is proving a workable basis for future deals - notably the N1/M1 sponsored by Celtic Roads. Simply put, the Irish National Roads Agency (NRA) went to market and got one of the best first time PPP deal ever procured by a public sector entity.

Nevertheless, the N4/N6 was a difficult ride for all concerned. Whilst initially there was no shortage of bank interest in Irish roads, many fell away after looking at the risk profile and the constraints on risk management. For example, real toll rates are determined by the government, not the sponsor, and there is no guaranteed comfort against competing routes. There is also no compensation in case of operator default (a risk beyond lender control) and no potential reward for taking on more risk because of a revenue sharing mechanism with government on higher than expected profits.

As rumoured at the time, the majority of bidders for N4/N6 did line up monolines for a bond deal - but a number of factors scuttled those plans.

The biggest problem lay in the traffic risk on the road. Mott MacDonald supplied traffic forecasting for the deal. Those forecasts have never been made public, but the tolling rates ? ranging from Eu0.9 for motorcycles to Eu4.3 for heavy goods vehicles - are designed to lend comfort to investors and users alike and appear competitive in terms of time over money with the existing free route.

However, Standard & Poor's (S&P) released a traffic risk analysis that concluded there was systematic optimism in the forecasts. Consequently, S&P required very pessimistic traffic assumptions to be modelled to give the project an investment grade rating - and without that rating the monolines would not offer cover.

But the hurdles to a bond were not all down to S&P's heavy focus on traffic risk as the main element in any rating. To most bidders a bond deal looked more cost efficient than a commercial bank deal given a bond maturity of 30 years. In order to allow this maturity, bidders needed a 33 year concession period (3 years from bond maturity to end of concession). And although they could present a variant bid based on a 33-year concession period (the base case was 30 years), all were aware that the NRA was basing its decision on a NPV comparison that did not favour an extension.

Furthermore, one of the requirements of the bidding process was full financial commitment at signing. Because that would have been unachievable with a bond deal, the winning bidder would have been forced to structure a commercial bank bridge loan and refinance in the capital markets at a second stage. In addition to the extra costs of pursuing that route, any refinancing gain that might have offset those costs would have had to be shared with the NRA, thus biting into the economics.

Despite not being able to follow the bond route, the winning Cintra-led Eurolink consortium, advised by PricewaterhouseCoopers, secured a Eu235 million project finance DBFO package lead arranged and underwritten by BBVA and Santander Central Hispano (SCH) at competitive pricing: 120bp over Euribor pre-completion on the 27-year term loans stepping up to 150bp.

Financing incorporates Eu176 million of senior term loans including an EIB guaranteed tranche and Eu14 million in standby funds, a Eu42.5 million equity bridge facility, a Eu8.8 million debt service facility, and a Eu5 million letter of credit.

Start-up capital costs on the project are estimated at Eu320 million with total investment over the life of the concession expected to hit Eu400 million. The Irish government is providing Eu170 million in capital costs subsidy throughout the life of the scheme and has spent Eu100 million to acquire the land for the route.

Eurolink (93% owned by toll road veteran Cintra, with Ireland's SIAC holding 7%) was selected by the Irish National Roads Authority (NRA) as preferred bidder on 14 November 2002 after stiff competition (started in 2001) from Celtic Roads Group (NTR, Ascon, Nuttal and Dragados advised by SG and backed by Allied Irish Banks); Direct Route (Brown & Root, Strabag, Jon Sisk, Lagan Holdings and Roadbridge advised by Deutsche Bank); and Erin route (Carillion, Balfour Beatty, Egis and WS Atkins advised by Macquarie Bank) which was the other short listed bidder.

The deal finances a 39km stretch of bypass in the wider east-west strategic corridor (given TENs status by the EC) connecting the midlands, Galway (west) and Sligo (north-west) to the east coast. The N4/N6 will bypass existing traffic bottlenecks in Kinnegad, Clonard, Balyynadrumny, Moyvalley, Enfield and Cloncurry.

N4/N6 construction is expected to take 3.5 years and the road opens in late 2006 when Cintra and its bankers will finally be proved right or wrong ? and given the N4/N6 is proving a workable template for other deals, signs are that they have got it right. This is a project that is never going to be popular with bankers and some NRA demands were unreasonable. But for all its problems, N4/N6 is proof that first time PPP deals in developed markets do not have to be financed at a premium.

N4/N6 Kilcock-Kinnegad Real Toll

Status: financial close 24 March 2003

Location: Eire

Concession awarder: National Roads Authority (NRA)

Concession: 30 years

Sponsor: Eurolink Motorway Operation Ltd (comprising Cintra; SIAC Construction Ltd)

Total cost: Eu320 million

Project debt: Eu235 million

Multilateral debt: EIB up to Eu130 million guarantee

Lead arrangers: BBVA; SCH

Financial adviser to Eurolink: PricewaterhouseCoopers

Financial adviser to NRA: KPMG

Technical adviser to NRA: Babtie

Traffic forecasting and design: Mott MacDonald

Feasibility funding: NRA; European Regional Development Fund

Legal counsel to concession awarder: McCann Fitzgerald; Freshfields Bruckhaus Deringer

Legal counsel to sponsor: Masons

Legal counsel to lenders: Linklaters

Legal counsel to EIB: Slaughter & May (UK); William Fry (Eire)