Poceirao-Caia: Fast train to Lisbon
Portugals first high speed rail project, the Eu1.473 billion ($1.83 billion) Poceirao-Caia PPP1 high speed rail concession, represents the high water mark of the 2008 to 2010 Portuguese infrastructure boom it will be the largest Portuguese infrastructure deal for the foreseeable future as the market begins to feel the effects of a government austerity plan. The deal is also notable for keeping to the bid price posted back in June 2009.
Poceirao-Caia is the first stretch of the Portuguese side of the high speed link between Lisbon and Madrid. The second and final stretch, PPP2, is being re-tendered with a reduced scope to lower the capital cost.
The Brisa/Soares da Costa-led consortium, ELOS group, posted a best and final offer bid (BAFO) with an NPV of Eu1.575 billion, against the Mota Engil/Somague/ Sacyr/Teixeira Duarte group which offered Eu1.597 billion.
The investment by the concessionaire will be Eu1.359 billion during the construction phase. The financing comprises a 33-year Eu600 million facility from the EIB, a Eu174 million commercial bank tranche, Eu122 million of equity and Eu688 million from EU TEN-T and cohesion fund subsidies. The debt-equity ratio is 85/15, the average debt service ratio is 1.20x and the loan life cover ratio is 1.25x.
The Eu600 million EIB contribution is split 50:50 between a direct loan and a Portuguese government guaranteed tranche.
The Eu174 million commercial tranche is split between a Eu95 million 27-year fully amortising term loan and a Eu79 million concession guarantee with a term of 40+1 years. Advisers CaixaBI and Millennium BCP took tickets of Eu20.2 million and were joined as lead arrangers by BES, which also took Eu20.2 million, Santander (Eu19.5 million) and BNP Paribas (Eu14.9 million). The Eu79 million counter-guarantee of the sponsors obligations was covered by CaixaBI, BCP and BES. The guarantee shares the same security package as the loan and no cash collateral is required, although collateral can be posted after the term loan is repaid to reduce the outstanding guarantee.
Margins on the term loan are high but relatively flat, starting at 300bp over 6-month Euribor during the 48-month construction period, which is covered by the sponsor guarantees, then rising to 325bp during operation and up to 350bp after 4.5 years. The upfront arrangement fee is 275bp. The average life is 20.3 years.
Swaps were signed at financial close, fixing the interest rate for the first five years on the Eu695 million of EIB and commercial debt. Swap fees are 20bp, with CaixaBI, BCP and BES taking 22.5% each, Santander 18.5% and BNP Paribas 14%. Under the financing and concession documentation, interest rate risk passes to the government owned grantor, RAVE, at year five, but banks have an obligation to monitor the markets, inform and possibly execute longer swaps if conditions result in a lower cost of funding.
The interest rates fell between the BAFO, which was posted in June 2009 and financial close, so the NPV to the state was reduced by 6% from the Eu1.575 billion NPV bid to Eu1.473 billion and the availability payments were slimmed to match. This reduction in the cost between BAFO and financial close should bode well for the Accounts Court consent (visto previo). The Accounts Court preliminary refused consent for five of Portugals new road projects due to increases in the cost between BAFO and bid. For PPP1, commercial banks will not disburse until a visto is granted, however the Eu300 million government-guaranteed EIB tranche is being disbursed. Full disbursement will occur by the end of the 48-month construction period.
Banco BPI had been expected to contribute a Eu12 million ticket, but withdrew and its allocation was shared among Santander and BNP Paribas. The formal reason given for BPIs withdrawal was market turbulence. On 5 May, rating agency Moodys put the state company responsible for the railways, REFER, on review for a credit downgrade because of concerns over the sovereign rating. REFER is rated Aa2, the same as sovereign. The sovereign rating is on review for downgrade given the recent deterioration of Portugals public finances and anaemic outlook for growth.
The availability-based 40-year concession comprises construction of 170km of high-speed track and 92km of conventional rail, and is 75% backed by availability payments from the Portuguese state and 25% by maintenance payments from REFER.
Besides the turbulence, BPIs CEO made a public statement that he did not support large outlays on infrastructure projects given public finances, so BPIs withdrawal has been viewed as politically motivated. BPIs position looks errant given that it was down to commit only Eu12 million to the project but just two weeks earlier stumped up a Eu100 million ticket for the Pinhal Interior road concession.
Construction is being undertaken under an EPC contract with a consortium of the contractor sponsors: Soares da Costa, Iridium/Dragados, Odebrecht, Edifer, Lena and Zagope. The construction contract is worth Eu1.4 billion, for which the contractors are joint and severally liable. There is a 5% performance bond (Eu70 million) counter-guaranteed by CaixaBI, BES, and BCP. Banks are principally reliant on the credit of the three largest constructors, Soares da Costa, Odebrecht and Dragados.
The availability payments are sculpted to meet the modeled projections of maintenance expenditure and renewal works. Probably the riskiest element of the project for lenders is the ongoing maintenance, given the lack precedents in Portugal and the lack of end-of-concession data for high speed rail projects across Europe. Maintenance costs are modelled at an indexed Eu12.2 million per year excluding VAT, with a separate SPV set up to service these costs. Banks have protection with a debt service reserve account and covenanted distribution lock up provisions at 1.12x ADSCR and 1.15x LLCR.
Poceirao-Caia HSL PPP1
Status: Financial close 8 May 2010
Description: financing for 40-year construction and operation concession of the 170km Poceirao to Caia portion of the Lisbon to Madrid high speed rail route
Sponsors: Brisa (16.30%), Soares da Costa (16.30%), Iridium (15.22%), Lena (13.04%), Odebrecht (13.04%), Edifer (7.61%), Zagope (7.61%), BCP (5.44%) and CGD (5.44%)
Financial advisers: CaixaBI and Millennium BCP
Mandated lead arrangers: CaixaBI, Millennium BCP, BES, Santander and BNP Paribas
Multilateral: EIB
Sponsor counsel: Vieira de Almeida & Assoc.
Lender counsel: Uria & Menendez (public law), Campos Ferreira, Sá Carneiro & Assoc. (finance documents)
Sponsor technical: Systra
Lender technical: Arup
EPC contractors: Soares da Costa, Iridium/Dragados, Odebrecht, Edifer, Lena and Zagope
Poceirao-Caia is the first stretch of the Portuguese side of the high speed link between Lisbon and Madrid. The second and final stretch, PPP2, is being re-tendered with a reduced scope to lower the capital cost.
The Brisa/Soares da Costa-led consortium, ELOS group, posted a best and final offer bid (BAFO) with an NPV of Eu1.575 billion, against the Mota Engil/Somague/ Sacyr/Teixeira Duarte group which offered Eu1.597 billion.
The investment by the concessionaire will be Eu1.359 billion during the construction phase. The financing comprises a 33-year Eu600 million facility from the EIB, a Eu174 million commercial bank tranche, Eu122 million of equity and Eu688 million from EU TEN-T and cohesion fund subsidies. The debt-equity ratio is 85/15, the average debt service ratio is 1.20x and the loan life cover ratio is 1.25x.
The Eu600 million EIB contribution is split 50:50 between a direct loan and a Portuguese government guaranteed tranche.
The Eu174 million commercial tranche is split between a Eu95 million 27-year fully amortising term loan and a Eu79 million concession guarantee with a term of 40+1 years. Advisers CaixaBI and Millennium BCP took tickets of Eu20.2 million and were joined as lead arrangers by BES, which also took Eu20.2 million, Santander (Eu19.5 million) and BNP Paribas (Eu14.9 million). The Eu79 million counter-guarantee of the sponsors obligations was covered by CaixaBI, BCP and BES. The guarantee shares the same security package as the loan and no cash collateral is required, although collateral can be posted after the term loan is repaid to reduce the outstanding guarantee.
Margins on the term loan are high but relatively flat, starting at 300bp over 6-month Euribor during the 48-month construction period, which is covered by the sponsor guarantees, then rising to 325bp during operation and up to 350bp after 4.5 years. The upfront arrangement fee is 275bp. The average life is 20.3 years.
Swaps were signed at financial close, fixing the interest rate for the first five years on the Eu695 million of EIB and commercial debt. Swap fees are 20bp, with CaixaBI, BCP and BES taking 22.5% each, Santander 18.5% and BNP Paribas 14%. Under the financing and concession documentation, interest rate risk passes to the government owned grantor, RAVE, at year five, but banks have an obligation to monitor the markets, inform and possibly execute longer swaps if conditions result in a lower cost of funding.
The interest rates fell between the BAFO, which was posted in June 2009 and financial close, so the NPV to the state was reduced by 6% from the Eu1.575 billion NPV bid to Eu1.473 billion and the availability payments were slimmed to match. This reduction in the cost between BAFO and financial close should bode well for the Accounts Court consent (visto previo). The Accounts Court preliminary refused consent for five of Portugals new road projects due to increases in the cost between BAFO and bid. For PPP1, commercial banks will not disburse until a visto is granted, however the Eu300 million government-guaranteed EIB tranche is being disbursed. Full disbursement will occur by the end of the 48-month construction period.
Banco BPI had been expected to contribute a Eu12 million ticket, but withdrew and its allocation was shared among Santander and BNP Paribas. The formal reason given for BPIs withdrawal was market turbulence. On 5 May, rating agency Moodys put the state company responsible for the railways, REFER, on review for a credit downgrade because of concerns over the sovereign rating. REFER is rated Aa2, the same as sovereign. The sovereign rating is on review for downgrade given the recent deterioration of Portugals public finances and anaemic outlook for growth.
The availability-based 40-year concession comprises construction of 170km of high-speed track and 92km of conventional rail, and is 75% backed by availability payments from the Portuguese state and 25% by maintenance payments from REFER.
Besides the turbulence, BPIs CEO made a public statement that he did not support large outlays on infrastructure projects given public finances, so BPIs withdrawal has been viewed as politically motivated. BPIs position looks errant given that it was down to commit only Eu12 million to the project but just two weeks earlier stumped up a Eu100 million ticket for the Pinhal Interior road concession.
Construction is being undertaken under an EPC contract with a consortium of the contractor sponsors: Soares da Costa, Iridium/Dragados, Odebrecht, Edifer, Lena and Zagope. The construction contract is worth Eu1.4 billion, for which the contractors are joint and severally liable. There is a 5% performance bond (Eu70 million) counter-guaranteed by CaixaBI, BES, and BCP. Banks are principally reliant on the credit of the three largest constructors, Soares da Costa, Odebrecht and Dragados.
The availability payments are sculpted to meet the modeled projections of maintenance expenditure and renewal works. Probably the riskiest element of the project for lenders is the ongoing maintenance, given the lack precedents in Portugal and the lack of end-of-concession data for high speed rail projects across Europe. Maintenance costs are modelled at an indexed Eu12.2 million per year excluding VAT, with a separate SPV set up to service these costs. Banks have protection with a debt service reserve account and covenanted distribution lock up provisions at 1.12x ADSCR and 1.15x LLCR.
Poceirao-Caia HSL PPP1
Status: Financial close 8 May 2010
Description: financing for 40-year construction and operation concession of the 170km Poceirao to Caia portion of the Lisbon to Madrid high speed rail route
Sponsors: Brisa (16.30%), Soares da Costa (16.30%), Iridium (15.22%), Lena (13.04%), Odebrecht (13.04%), Edifer (7.61%), Zagope (7.61%), BCP (5.44%) and CGD (5.44%)
Financial advisers: CaixaBI and Millennium BCP
Mandated lead arrangers: CaixaBI, Millennium BCP, BES, Santander and BNP Paribas
Multilateral: EIB
Sponsor counsel: Vieira de Almeida & Assoc.
Lender counsel: Uria & Menendez (public law), Campos Ferreira, Sá Carneiro & Assoc. (finance documents)
Sponsor technical: Systra
Lender technical: Arup
EPC contractors: Soares da Costa, Iridium/Dragados, Odebrecht, Edifer, Lena and Zagope
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