After months of protraction, one of the largest motorway financings in Eastern Europe - the A2 real toll road project - finally closed on 30 October 2000. The Eu235 million senior bank debt part of the transaction was lead arranged by Credit Lyonnais and Commerzbank for the Polish concessionaire Autostrada Wielkopolska S.A. (AWSA).

The deal marks the first public/private partnership in Poland and is a considerable turning point for project finance transactions for Central and Eastern Europe, given the absence of any such road infrastructure projects in the region since Hungary's 1996 M5 project.

Total project cost weighs in at approximately Eu875 million, of which Eu235 million is supplied through shareholder equity and subordinated bonds. Also available at financial close is contingent shareholder support of Eu32 million, primarily covering post-completion revenue shortfalls.

The loan splits into Eu235million of senior bank debt (including interest during construction) and a Eu275 million structurally subordinated zero coupon EIB-backed bond.

The commercial loan flaunts a scheduled maturity of 17 years, although a cash-sweep mechanism will reduce the final maturity to 13 years (target maturity) on the basis of availability. Interest rate hedging will cover 78.7% of the senior debt based on the 13-year target maturity profile. The remaining 21.3% of the senior debt may be drawn in Polish Zloty (partial devaluation risk hedge) if the majority banks consider that advantageous to the project. Credit Lyonnais expects this to be attractive, especially in the event of the Polish Wibor converging with Euribor by that time. Zloty financing would provide a natural hedge against devaluation.

The EIB portion, backed by the Polish government, represents the first time the bank has directly extended a 17-year facility to a project. This deferred-coupon bullet repayment facility was structured to allow the repayment of the commercial loan first - vital for the entire deal. The proceeds of the Eu275 million accrue over the loan life to Eu800 million at maturity.

Also noteworthy is the deal's innovative repayment structure, set up with two options: a minimum 17-year plan and an optimal 13-year plan, depending on project cashflows. If the project performs well, repayment kicks in over a maturity of 13 years. In a sub-optimal case, repayment will extend up to 17 years. In the banking base case, bank maturity is 13.5 years.

Excess cashflow available after repayments is used either to credit the debt service reserve account or to make additional repayment up to the 13 year maturity target profile.

Pricing varies over tenor - 180bp for the 4.5 year construction period, and then 220bp until 2012 and 235bp thereafter. The margin will step down to 200bp prior to 2013, if AWSA achieves the pre-agreed target maturity profile. The commitment fee is 70bp.

The A2, a TENs (Trans-European Networks) project, is one of the most strategically important infrastructure links between western and central Europe. It is also the first BOT toll motorway project in Poland. The project has assumed profound importance for Poland, which is just shy of EU ascension and is in dire need of rehabilitating decrepit infrastructure.

The 40-year concession, totalling 254 km, will terminate in 2037 and comprises two segments between the German border at Swiecko and Konin, 180 km west of Warsaw.

The financing will cover the 149 km initial segment between Nowy Tomysl and Konin (of which 88 km is to be built and 48 km to be rehabilitated ? a 13km bypass of Poznan will be built under the responsibility of the Government of Poland and handed over by the latter).

The motorway will be built and designed for a fixed price of Eu638 million by a consortium made up of Strabag (50%) and NCC (50%), on a date certain, turn-key contract. The consortium is committed to build the motorway within 4.5 years (21 months less than the concession requires), but the first two sections (totaling 86 km) are to be completed within 3.5 years (only 3 years for the Poznan bypass). Liquidated damages are set at 5% of the construction price for each section. This amount will provide cover for approximately 12 months of lost revenues for each section.

Egis, a French company wielding extensive experience in toll motorway operation throughout Europe, and Kulczyk Holding both lead the consortium mandated to operate the motorway facilities, under a contract with the concessionaire, spanning the concession life (until 03/2037). The operator will receive a fixed fee, a variable fee depending on traffic volume and an additional incentive fee.

Three consecutive traffic studies undertaken have resulted in ever more conservative assumptions. More specifically, lower value of time, lower perceived vehicle operating costs, and higher speeds on alternative road have now resulted in a reduction in traffic capture, with the additional assumption of lower traffic growth rates. Accordingly, the assumptions would result in a further decrease in revenues of approximately 16% in 2002 to 50% in year 2022.

Among Autostrada Wielkopolska's shareholders are Elektrim, the telecoms-focused conglomerate, Kulczyk-Holding, the investment conglomerate that recently participated in state telecom TPSA's privatization in a consortium with France Telecom, Orbis, the hotels and tourism group, and PSE, the national power grid.

The project, it is hoped, will help kickstart a $15 billion program to build 2,600 km (1,616 miles) of motorways over the next 15 years, a plan which has been effectively frozen since 1994. Poland currently has 266 km of motorways.