N4/N6: making concessions?
The deal is a boost for the NRA, which needs a flagship to restore momentum to its programme. The NRA has been dogged by rumours ranging from a re-tendering for the N4 to attempting to transfer too much risk to the private sector.
While there has been no shortage of bidders for Irish roads, many in the project market have been wary of the risk profile. Real toll rates are determined by the government 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.
According to the NRA it has modified its position on many of these issues to take into account market concern during negotiations over the deal ? negotiations that themselves sparked many of the rumours.
Nevertheless, there is still no confirmation from arrangers of when general syndication will take happen ? surprising given a club-type deal was expected to be in place prior to financial close.
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 Roadbrodge 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.
In terms of overall Irish PPP development Kilcock-Kinnegad is the third Irish PPP deal to close. But the first deals ? both for school portfolios ? lacked the scale and degree of risk transfer in N4/N6. And while N4/N6 is not Ireland's first privately operated toll road ? the M50 western ring road real toll around Dublin is a private sector operation run by National Toll Roads ? it is the first true Irish PPP road operation and financing.
The deal finances a 39km stretch of bypass in the wider east-west strategic corridor 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. The east-west corridor has been given TENs status by the EU, which goes a long way to explaining EIB involvement in a project that could probably get done, albeit at higher cost of debt, without multilateral involvement. Construction is expected to take 3.5 years and is scheduled to start in May with the road opening in late 2006.
Mott MacDonald supplied traffic forecasting for the deal. Tolls will range from Eu0.9 for motorcycles to Eu4.3 for heavy goods vehicles, the fairly low toll rates designed to lend comfort to investors and users alike and appear competitive in terms of time over money with the existing free route.
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 is spending Eu100 million to acquire the land for the route.
Financing incorporates senior term loans of between Eu165 and Eu185 million in total, depending on the size of the final EIB-guaranteed tranche, a Eu42.5 million equity bridge facility, a Eu10 million debt service facility, Eu14 million in standby funds and a Eu5 million letter of credit.
Pricing on the 25-year term loans is 120bp over Euribor pre-completion, stepping up to 150bp. Several institutions have expressed interest in being brought into the deal and an unconfirmed club-type syndication is expected in April.
The financing, consents and security package incorporate elements of UK and Irish law, which although similar, are different enough to require a large legal team on the deal. Linklaters acted as legal counsel for the banks, McCann Fitzgerald and Freshfields Bruckhaus Deringer for the NRA; Masons for the sponsor; and Slaughter & May and William Fry for the EIB.
Until more details on the N4/N6 risk/ reward mechanism emerge it is difficult to conclude what type of benchmark this deal is ? other than the first of its kind in Ireland.
What is certain is that closure of the N4/N6 is timely. Within days the NRA shortlisted two final bidders for the N8 Rathcormac/Fermoy Bypass ? Direct Route and Togher Toll (Mota-led with Coffey Construction, Priority Construction and John Mowlem backed by Banco Espirito Santo (BES).
And on March 7 the Irish High Court also ruled against a legal challenge that was blocking progress on the N1/M1 Dundalk bypass scheme for the preferred bidders ? Eurolink and Celtic Roads. Both schemes will now be going to BAFO and drumming up lender interest in tandem.
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)
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