The FCC-led consortium, Cedinsa Concessionària, was awarded the C25 Eix Transversal 33-year shadow toll concession by the Catalan government on 31 October 2007 and reached financial close on 29 July 2010. The deal was closed in a particularly difficult financing environment, with limited bank appetite for very long term project finance type transactions, especially those involving traffic risk.

Oriol de Soto Salvans, CEO of the project company Cedinsa, says: “The Eix Transversal project has been rebalanced after more than one year of talks between the Catalan Government and Cedinsa. It has not been easy to smooth the tensions that had arisen due to the further analysis of the motorway costs, the new economic environment and its impact on the traffic forecasting and the financial markets.”

Part of the compromise included an increase in the shadow toll due to lower than previously projected traffic, and the addition of a Eu50 million equity loan provided by the Catalan government.

The total cost of the project is Eu815 million ($1.12 billion). The financing comprises a 24-year Eu487 million term loan provided by La Caixa (Eu200 million), EIB (Eu200 million) and ICO (Eu87 million), a Catalan government grant of Eu254 million – Eu174 million of which is given during the construction and Eu80 million once the construction is finished – and a government equity loan of Eu50 million. There are also shareholder contributions of Eu105 million, Eu59 million of which will be contributed as equity and Eu46 million as subordinated debt.

The average life of the senior debt is 16 years. The DSCR is 1.25x and debt margins are flat and thought to be around 300bp over Euribor. Construction is due to be complete in July 2013.

Critical to the financing was the added comfort to senior lenders given by the LGTT guarantee facility provided by the EIB – the first time it has used this facility in Spain – which helps to mitigate traffic risk in the ramp-up period.

The C-25 project posed several challenges to the banks, from a credit risk and contractual standpoint, both during the construction and the operating periods of the project. A major challenge was raised by the obligation imposed by the concession contract on the concessionaire to tender around 38% of construction works to third parties. This resulted in increased coordination requirements that were overcome by setting-up tender specifications ensuring adequate quality and solvency of third-party contractors, effective shareholder support mechanisms mitigating delay and cost overrun risks and careful drafting of protection clauses in the finance contracts.

The project is a shadow toll with around 35 counting places where the project company collects data about how many and what type of vehicles (cars or trucks) are using the motorway. The toll received by Cedinsa for each truck is 40% higher than the one for each car. Every month the company will bill the Catalan Government with 1/12th of 80% of the predicted annual revenue in the base case. In January of the following year the project company will receive the amount that is not paid yet or, if the traffic has been below 80% of the base case, the project company repays the Catalan Government for the amount paid in excess.

A challenge of the project was to ensure its bankability given the sizeable investment requirements and traffic risk involved, which was considerably reviewed downwards from the original traffic forecasts at the adjudication date. In addition to strong equity and mezzanine support, and the LGTT, the Catalan government provides a cap and floor traffic guarantee post-2025 with the banding based on the previous years’ average daily traffic.

Other lender mitigants include a debt service reserve account (SRA) and a big reparations reserve account (BRRA). The SRA is funded with the last disbursal of the loan and then is regulated every six months with project cash flows. The BRRA is fully funded with project cash flows.

The major mitigant, the LGTT, is an unfunded subordinated instrument based on a guarantee provided by the EIB. In cases where a defined trigger event is reached – specifically if the traffic falls more than 12.5% below base case – the guarantee is callable at a specific date and mezzanine funds are injected in order to repay up to 20% of the senior debt. The LGTT is structured to be injected in one-shot once triggered: Eu70 million in cash in 2018. The design of the trigger event is an iterative process that will result in the optimal cost-effective traffic drop scenarios to recover base case DSCR and LLCR. LGTT will significantly increase downside resistance for C25 as compared to a structure without the instrument.

An LGTT guarantee fee is an upfront fee to account for the risks taken by EIB. The cost of the mezzanine funds (once injected) are range from 200-250bp over the EIB reference rate.

The direct consequence is the repayment of senior principal and hence reducing the senior debt exposure. This immediately improves the DSCR and LLCR of the project either by reducing debt service keeping the tenor or by inverse acceleration. The LGTT is injected as a mezzanine piece that will be recovered through a cash-sweep mechanism subordinated to senior debt.

Adrian Zambrano, Structured Finance, EIB says: “In our opinion the most innovative aspect of this deal is use of the LGTT as a principal component of the financial structure to offset traffic risk. As a direct consequence the financing cost was optimized increasing the overall robustness of the project. This structure allowed the sponsors to offer a more competitive shadow toll tariff in line with expectations of the Cataluña Government.”

C25 Eix Transversal
Status: Financial close 29 July, drawdown expected 30 October
Description: a 33-year shadow toll concession. Construction comprises dualling150km of highway connecting Catalonia from east to west through Manresa and Vic
Sponsors: FCC (27.2%), Comsa Concesiones (17.6%), Copisa Industrial (17.6%), Copcisa Constructora Pirenaica (17.6%) and Caixa d’estalvis de Catalunya (20.0%)
Mandated lead arrangers: La Caixa and ICO
Multilateral: EIB
Sponsor counsel: Cuatrecasas Gonçalves Pereira
Lender counsel: Uria Menendez
Technical adviser: Typsa
Model auditor: Deloitte
Traffic consultant: ALG