The combination of a new public concession law -  specific rail and port legislation - financing of the Radiale 4 (R4) and R3+5 toll road debt packages, government tarrif system for renewables and, perhaps most significantly in terms of getting deal flow moving quickly, an election early next year have put Spain at the forefront of the European project lending markets in the last six months.

Private involvement in Spanish infrastructure is not new. Last month Ferrovial handed back the first Spanish toll road concession to the Basque government - the Bilbao Behobia (Europistas) road awarded in 1968. The Basque government is to cut tolls by half and has re-awarded Europistas and Ferrovial maintenance contracts for half the motorway each.

Nevertheless, the Madrid Radiale concession syndications could not have been more timely. There are seven more toll road mandates to come over the next three years and arrangers believe "more than one will come out before the elections next year."

Furthermore, changes in public concessions law, enforceable from August, go a long way to clarifying existing grey areas in infrastructure projects and opening up the PPP and project bond markets in which the Radiales will almost certainly be refinanced once operational.

Spain has a highly regulated toll concession system, not unlike France, in which project termination payments (RPA) are set down in law at different rates depending on the nature of the default. The RPA covers worst case scenarios with a maximum and minimum limit and has now been extended to all other infrastructure project sectors.

The RPA system, combined with the 60 year length of concessions on the recent Radiales mitigate much of the risk on the bullet profile of the miniperms put into place. As Pedro Michelena, head of structured finance at BBVA, says "these projects are able to amortise well before the end of the concessions even if not refinanced." The RPA also means projects can be signed and then financed years later ? as in the case of the Radiales.

Both Radiales projects are similarly structured. The Eu600 million Cintra-led R4 real toll lead arranged by BBVA, Credit Agricole and SCH formally syndicated on May 9.

The Eu736 million R3+5 combined package is very similar to R4. Arranged by Caja Madrid, ING and ICO for sponsors Sacyr, FCC ACS, Acesa, ENA, OHL and Caja Madrid, the deal closes syndication in the second week of June. The package comprises a Eu669 million seven-year bullet with an EIB guarantee facility. Pricing is around the R4 mark and Caja Madrid is both guaranteeing construction (underway and expected to finish this year) and potential cashflow problems.

As with R4, R3+5 will be fully amortised by 2032 even if not refinanced at the end of the seven-year bullet - 17 years before the end of the concession in 2049.

ENA privatisation

With such a safe road lending profile many in the market are also looking to the syndication expected to fund the state sell-off by SEPI of road concession company Empresa Nacional de Autopistas (ENA). After stiff competition from Ferrovial, OHL/Apax and Acciona/FCC, a Sacyr-led consortium comprising Torreal, SCH, Caixanova and Caixa Galicia won ENA late last month with a bid of Eu1.58 billion - Eu380 million over the government reserve price. All bidders heard back from bid valuers Pricewaterhouse Coopers and government advisor BBVA within 24 hours - indicating that price alone was the criteria - and some have expressed surprise at the size of the bid.

But ENA's income stream is very predictable and although the sale was complicated by the fact that both the governments of Navarre and Asturias (two of ENA's four major concessions) are anti-privatisation - two-thirds of the company's income comes from concessions in Galicia: ENA comprises existing road concession totalling 463 km - two in Galicia (Autopista del Atlantico and Autoestradas de Galicia), one in Navarre (Audenasa) and a fourth running between Asturias and Castilla y Leon (Aucalsa). ENA also has minority interests in ongoing projects including the Radiales 3,4, and 5 and the central Galician highway from Santiago to Ourense.

The deal still has to be approved by the Council of Ministers, the Privatisation Council and the Monopolies Council, but it is likely to close in the next six months pre election. Expectation is that the bid will be financed through a short-term acquisition facility and replaced with a bond incorporating securitization future flow techniques - a structure the new law on public concessions has made feasible albeit with the consent of the regional adminisatrtion concerned.

Bond market development

The straight project bond market has also been promoted in the same law. From August onwards bonds can be issued at the same length as concession tenure and the size of the bond is not limited to issuer capital plus reserves ? a clear indication that this is intended to promote the project bond business.

Caja Madrid is already working on the first small road bond deal likely to come to market before year end ? Vinedos. The project is sponsored by Acciones and combines bits of existing and new road between Toledo and Castilla La Mancha. The deal, if and when it happens, is likely to be followed by the latest Radiales once they are operating and can demonstrate income streams.

The banks are not getting it all their own way in the lending environment. While the new concessions laws go a long way to opening the PPP market there are reservations about its application at regional government level. Much of the new legislation requires the authorisation of regional administrations and requests to structure future flow deals, for example, can be vetoed if not deemed to be in the public interest.

Furthermore, Spain has just had local elections causing a few changes on the potential PPP map. Barcelona still looks good for PPP development but there are deep reservations as to whether any mandates will come out of the new Madrid government.

The lending market faces similar political issues in Spain's high speed rail programme, which has just gone off the rails again after disagreements with Portugal over the route the link should take. And there is irritation at the EIB for competing with the banks for business and hitting "natural" margins on deals that could be funded without EIB backing.

Most recently BBVA has won preferred guarantor status on the Eu70 million 30-year EIB project funding for the Tenerife Light Rail PPP project. BBVA is to put up two consecutive 15-year guarantees with the second guarantee kicking in if the project meets annual debt service coverage of 1.5x at 14.5 years into the loan. Construction is due to start this year with start of operations in 2006. PricewaterhouseCoopers is advising local authority Cabildo de Tenerife.

Risk on the deal is fairly limited. Traffic forecasting has taken into account a major drop in demand and hence future receivables, and while the funds will go towards construction costs, construction risk is covered by a public sector guarantee. Consequently, EIB involvement is not a necessity - just cheaper for the government.

Regas and renewables

The energy sector has also witnessed major changes with hopes for the development of an IPP project market all but shattered in the short term and lenders now looking to regasification business and renewables.

ESB's Energia Bizkaia project, closed two months ago, and AES' Cartagena both had difficulty getting off the ground. Cartagena is still in the market.

The deal has been tweeked to attract more interest with a 10% equity injection to 80/20 debt to equity ratio. Pricing however has not changed and remains at 140bp during the eight year miniperm rising to 170bp if the loan is not refinanced. ABN Amro, SG and Credit Agricole are arranging the troubled deal and still have more commitments to get before underwriting.

Cartagena is symptomatic of not only having a weak sponsor - AES - but the end of IPP hopes in Spain with forecast output having declined from 30% of new builds going forward to 12% while electricity demand increases by 3.75% a year until 2011. The problem is said to be the long permitting process which puts developers that can pay outright at an advantage: Electrabel is unlikely to come to market with the only other two Spanish IPPs under development and any incumbent CCGTs will be financed from cash reserves.

The regasification sector is looking more healthy than the IPP. The Bilbao regas deal (Bahia de Bizkaia) signed in March - the first limited recourse gas deal under Spain's new liberalised regulatory environment. Sponsored by Iberdrola, Repsol, BP and Basque Energy Agency EVE, the deal comprises Eu70 million in equity and a Eu200 million EIB loan guaranteed by monoline MBIA. Uria y Menedez acted as counsel for the sponsors with Gomez-Acebo y Pombo acting for MBIA.

And further deals look set to come to market -  bankers are hoping without EIB involvement. Planta Regasificadora, a Eu234 million project lead sponsored by Union Fenosa with Iberdrola and Repsol, has approached banks for proposals for a debt facility for the Eu234 million LNG regas plant at Segunto, Valencia. Both legal counsels on Bilbao are hopeful of being awarded project counsel on this new deal and although details are under wraps, the possibility of another EIB/monoline financing still exists.

Union Fenosa and Endesa are also promoting another regas scheme in Galicia - Regasificadora del Noroeste in La Coruna province (the El Ferrol project). Patners in El Ferrol include Sonatrach, the Galician regional government and local Glaician savings banks. Total cost of the project is estimated at around Eu200 million.

In the renewables sector the tariff system based in Royal Decree that has so long promoted wind have been marginally cut (see feature, May issue, page 25). The Spanish wind sector, now only second to Germany in Europe, now attracts interest in its own right and government subsidy has been moved sideways to the biomass sector where projects are likely to start closing in the next two years.

But the SEC wind deal is cutting-edge - the first non-recourse wind acquisition facility in Europe and made more complicated by the fact that under Spanish civil law the assets of the acquired company cannot be used as security against debt raised to finance the takeover.

Consequently the deal has been done through SEC HoldCo, a special purpose joint venture which has purchased all the shares of SEC. Lender security in the short term is therefore corporate-based with no recourse to the assets. Nevertheless, the deal has been structured as non-recourse in the expectation that HoldCo and SEC will formally merge within the next 12 months ? thus giving recourse to the assets.

And a merger is a certainty structured into the project. If it does not happen in the next 12 months the margin on the deal climbs 35bp. After 18 months the margin goes even higher at which point a cash sweep kicks in to pre-pay the facility and the deal goes into refinancing.

There are two further major wind deals in the Spanish pipeline - the Eu800 million Dragados sponsored Eolico project and Elecnor both of which Caja Madrid is advising on.

Spain's project renaissance s not restricted to domestic markets. With traditional South American road markets, notably Chile, diminishing in size the Spanish infrastructure banks and developers are also looking abroad for new road opportunities. BBVA has just co-led the SR125 in the US, taken a piece of the N4/N6 in Ireland two months ago and having taken a piece of Highway 407 three years ago is now looking at a deal in British Columbia.

In simple terms ? if you cannot break into the Spanish project sector it looks set to come to you.