It has been a controversial deal since the winning bidder first offered Eu480 million more than the Eu1.1 billion minimum asking price. But the Eu1.6 billion ($1.84 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de Autopistas (ENA) signed on October 30 - restructured but with ENA's corporate and its debt guarantee ratings withdrawn by S&P due to 'lack of sufficient information'.

Despite what appears to be a frosty relationship with the ratings agencies, ENA has sold well and in its restructured form has addressed many of the concerns that dogged its original incarnation in June.

The first ENA offering comprised two 22-year tranches - Eu400 million at 125bp 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.

And although withdrawn from the market in July after Moody's and S&P downgraded ENA to sub-investment, the lead arrangers - Santander Central Hispano (SCH), BBVA, Credit Agricole Indosuez (CAI) and Ahorro Corporacion - had already got sub-underwriting commitments from three banks.

The rating agency concerns were over 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. Consequently the downgrade did not trouble the would-be project lenders - particularly given a 15-20 year old existing income stream to analyse and that most of the Group's motorways are now fully operational and in use.

However, the 22-year term implied two potential hurdles to local selldown in its original form. First, the local Spanish banks were apparently 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.

Second, the long tenor implied a capital markets refinancing - which was in fact the plan - at which point the sponsors would have to tap the very 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.

In ENA's new incarnation that ringfencing has been achieved with bondholders having seniority over project lenders. And local bank worries over long-term lending have been calmed with a seven-year term and an extra 20bp in pricing over the shorter period.

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. And 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.

Despite the ratings agencies' inability to get comfortable with ENA, bank take-up on the revamped deal has been very strong - 41 buyers in total. And given the bullet repayment structures there are clearly no worries over ENA creditworthiness - if there were, the banks would shy away from the refinancing risk.

The same is true of the majority of the bidding sponsors with the 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 has ended up paying Eu1.622 billion due to the increase in ENA's capital and reserves between January and September 2003. Has it bought well? According to Sacyr, EBITDA expected from ENA's concessions will 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%.

But more significantly Sacyr has effectively bought itself an extra 17.9% of the Spanish toll road market to add to its existing 5.1% share through subsidiary Itínere - making it the biggest toll road operator in the country.

The Portuguese A-9 Ferrol-Tuy-Border expressway is the best buy of the ENA concessions with 215km of road (193 in operation and 22 under development at the connection with Portugal). Its income of Eu92.4 million in 2002 accounted for 57.7% of ENA's total income and the concession does not end until 2048.

With bids for the next round of Spanish DBFO road schemes due in this month, the price paid for ENA is likely to look a lot better than it did initially. And with those bids involving a similar round of funding, the bullet structure looks set be the model to follow.

Empresa Nacional de Autopistas
Status: Signed 30 October 2003
Description: Eu1.6 billion acquisition financing of Spanish state-owed 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