The financing of Spain's Radial Programme is drawing to a close, with the second of the three concessions for high-capacity toll access roads to Madrid formally syndicated early last month and the third undergoing syndication at present.

The ?Radial 4? or R4 project, which was formally syndicated on 9 May, closed more than six months later than originally expected as discrepancies in traffic forecasting resulted in one of the co-lead arrangers, SG, pulling out in the middle of last year. The R4 is a largest of the three concessions with total investments amounting to Eu784 million, and, unlike the 24-year concession on the R2, which was syndicated in July last year, will not be financed to term. The R2 had traffic projections that allowed for such a short concession period making financing to term possible.

The R4, on the other hand, will be a much longer concession period ? 65 years. The R3 & R5 concession is to be 50 years but this could be lengthened. (The maximum concession period in Spain is 75 years). The R4 will initially be financed through a six-year mini-perm with the senior non-recourse loan element of the package priced at 130bp over Euribor flat.

According to Mary Luz Campo, director of syndicated loans at BBVA this is the first time that a mini-perm has been used in transport finance in Spain. ?The use of a mini-perm is favourable as it allows the sponsor to refinance, hopefully on better terms, once real traffic figures can be calculated as opposed to basing the financing on forecasts,? she observes.

Jorge Gil, head of project finance at Cintra, which is leading the consortium sponsoring the R4, notes that the long concession period is favourable. ?A 65-year concession mitigates the risk of refinancing enormously. Once construction is complete and we have real traffic on the highway, I am certain financing on better terms will be much easier,? remarks Gil.

The R4 project comprises a 53 km toll road running alongside the N-IV to the south of Madrid in Ocaña. The R4, like the N-IV, will be two lanes in each direction, but has been designed to enable it to be widened to three lanes in the future. There will be a total of nine interchanges, two main toll plazas and five additional toll ramps.

The project also involves the construction of a 42km segment of the M50, an untolled orbital to be funded by the private concessionaire via a cross subsidy. Each of the concessionaires of the radials is responsible is for the construction of a segment of the M50, which under the concession agreement have to be transferred to state ownership ready for full traffic prior to the opening of the toll roads.

The sponsor of the RIV is the Autopistas Madrid Sur consortium, led by Cintra (45%) and also including Europistas (25%), Empresa Nacional de Autopistas (10%) Caja Castilla La Mancha (10%) and UniCaja (10%). Cintra is Ferrovial's highway subsidiary, of which Ferrovial has a 60% stake and Macquarie Infrastructure Group a 40% stake. Construction, which began in February 2002, is on time and within budget and is expected to be completed by August next year.

The original lead arrangers on the project were BBVA and SG. The forecast, undertaken by Steer Davies Gleave for the co-leaders, estimated traffic volumes to be 28% lower than what the sponsor's advisor, ETT, predicted. A final agreement could not be reached and in August last year, SG pulled out, leaving BBVA as sole arranger. Late last year Credit Agricole Indosuez and Santander came on board and a second traffic forecasting was undertaken by Faber Maunsell. Although this forecast also predicted traffic to be lower, the difference was not as large, at 17%.

A compromise was made by both sponsor and lenders and an agreement on traffic forecasting was reached that both parties are comfortable with. Gil says that Cintra is still confident that the traffic it estimated will materialise, describing the traffic forecasts agreed upon as ?more than conservative'. The senior syndication of the deal was oversubscribed by nearly 40%, making general syndication unnecessary.

The senior debt is an Eu456.6 million bullet term loan, which comprises two tranches ? an Eu96.6 million commercial bank tranche and an EIB Eu360 million guarantee facility. Twelve co-arrangers have come in, as well as Ahorro Corporacion Financiera (ACF), which represents the interests of a further twelve Spanish savings banks (cajas). Co-arrangers with final holds of Eu23.238 million include Barclays, Dexia Sabadell, Caja Madrid and Bank of Ireland.

The senior debt package also includes a three year Eu70 million VAT loan being held by the three lead arrangers.

A sub-debt tranche of Eu100 million is provided by a group made up of the lead arrangers and Spanish savings banks including, Caja Castilla La Mancha, Caja de Burgos, Caja Criculo de Burgos and Unicaja. This sub-debt is also priced at 130bp. The maturity date on this senior debt package is January 2009. Total equity from the sponsors amounts to Eu270 million.

According to Carlos Milans del Bosch, director at CAI, a major challenge in structuring this deal was the difference in tariff rates at different times, with there being a peak rate, an off-peak rate and three periods in the night when there are to be no charges at all. ?As a result of this tariff structure it is likely that in the early stages of the project there could potentially be cash shortfalls and, as a result, strong security has had to be worked into the package to cover this,? Milans del Bosch explains.

In order to make the lenders comfortable with some of the project's risks the sponsors have assumed some contingent liability. There will also be discount schemes ? both for frequent users and those that make use of the automatic teller pay systems.

An eventual bond refinancing is likely, since it is expected that capital markets funding will become increasingly popular. Bank financing alone will not be enough to meet the needs of Spain's Eu115 billion ?Plan de Infraestructuras 2000-2007?, an infrastructure development programme of which the Radial Programme forms a part. There is also regulatory support for using this route since the concession bill facilitates capital market transactions.

Autopistas Madrid Sur

Status: Deal formally syndicated May 9, financial close 27 January 2003

Location: Madrid, Spain

Description: Toll access road R4 alongside N-IV plus a third segment of the M-50.

Granting authority: Ministerio de Fomento (Ministry of Public Works of Spain).

Sponsors: Cintra (45%), Europistas (25%), Empresa Nacional de Autopistas (10%), Malaga y Antequera (10%), Caja de Ahorros de Castilla-La Mancha (10%)

Debt: Eu456.6 million senior debt, consisting of an Eu96.6 commercial bank tranche and an EIB Eu360 million guarantee facility.

Lead arrangers: BBVA, CAI and SCH

Financial advisor to the consortium: BBVA

Traffic advisors to consortium: ETT

Legal advisor to the consortium: Internal legal counsel

Legal advisor to banks: Clifford Chance

Traffic advisor to banks: Faber Maunsell