The Windsor-Essex Parkway was one of the most sought after PPP deals in Ontario in 2010. Sponsors and banks bent over backwards to bid on the C$1.2 billion ($1.2 billion) deal – the province’s first availability-based road concession. The ACS, Acciona and Fluor-led Windsor Essex Mobility Group won the 30-year design-build-finance-maintain concession in November and reached financial close on a C$1.1 billion debt package, which complemented C$120 million in equity, the next month.

The 11km parkway will connect Highway 401, the main road between Windsor and Toronto, to the proposed Detroit River International Crossing (DRIC). The project is designed to shift cross-border traffic away from local streets, which all traffic must use to access the existing Ambassador Bridge and the Detroit-Windsor Tunnel crossings. It includes construction of a six-lane limited access highway as well as adjacent parks and community space. Infrastructure Ontario and the province’s Ministry of Transportation were the grantors.

Banco Santander, Banesto, BNP Paribas, Bank of Tokyo Mitsubishi UFJ, Caja Madrid, Credit Agicole, Dexia, ING, Societe Generale and WestLB arranged the two-tranche club financing. The debt was split into a C$954 million 4-year construction tranche that priced at 200bp over CDOR and a C$166 million 30-year soft miniperm that initially priced at 225bp over CDOR but will rise to 300bp over CDOR by year 10. However, the sponsors intend to refinance the debt before year 10 to avoid a cash sweep. The $120 million equity contribution is split equally between the sponsors. The loans will repaid through a combination of milestone, acceptance and availability payments from the grantors.

The deal is the second to use long-dated bank debt instead of a bond in Canada during 2010. According to a banker who worked on the deal, the sponsor chose this structure in order to have some flexibility in the financing agreements in case any amendments need to be made during the construction phase. They add that there was hardly any difference in pricing between the bank and bond options. The first deal to use a long-dated bank loan was Hochtief and Concert Real Estate’s Ontario provincial police (OPP) facilities modernisation project, which used a C$53 million roughly two-year construction loan and a C$110 million 30-year term loan arranged by WestLB, Nord/LB and KfW. The financing priced at an average of 290bp over CDOR.

Lenders were keen to finance the deal. A number admitted to treeing – a process where two teams in a bank’s project finance division, separated by Chinese walls (and often oceans), work on different bidders’ financial proposals for a project – in order to increase their institution’s likelihood of working on the transaction. This eagerness to participate in the deal drove down borrowing costs, which were the lowest for a Canadian PPP since before the 2008 credit crunch.

In addition to their eagerness to finance Windsor-Essex, lenders also expressed few reservations with its structure and risk allocation. The banker says provincial risk was their biggest concern, but that it was on par with the numerous hospital projects that reached financial close in Ontario during the past year. They add that the contract includes adequate compensation for its construction risks. The sponsor bears no traffic risk despite, or perhaps because of, the uncertain future of the DRIC bridge project to which it is designed to connect.

Windsor-Essex was developed as part of the DRIC. The first traffic studies looking at a new crossing over the Detroit River and Canadian approach road were conducted beginning in 2000 and a formal DRIC study was launched in 2005. The parkway alternative was selected in 2007 and formally identified as the Canadian approach to the bridge in 2008. A request for qualifications for the PPP was released by the grantors in June 2009.

Rose City Parkway Group (Aecon, Fengate, Macquarie Capital, Hochtief, Kiewit and AECOM) and Windsor-Essex Transportation Partners (Carillion, Scotia, PCL, Bilfinger Berger and HSBC Infrastructure) were shortlisted, along with Windsor Essex Mobility Group by the grantors in October 2009. A request for proposals was released on 29 December 2009, proposals were submitted on 8 August 2010 and the preferred proposer was announced on 5 November 2010.

The PPP for the bridge has not progressed as smoothly. Despite being developed in tandem with the parkway, it has been held up by litigation between the Detroit International Bridge Company, owner of the Ambassador Bridge, and the Michigan Department of Transportation (MDOT), and concerns in the state legislature around whether construction of a second Ambassador span would be a more cost-effective solution to cross-border congestion. Potential bridge sponsors also expressed concerns about the feasibility of the project as a real toll PPP due to competition from the existing crossings.

As it is currently proposed, the $2.2 billion DRIC would include a new span over the Detroit River and new customs and immigration, and toll facilities on both sides of the river. It would connect Windsor-Essex with I-75 in the US south of the centre of Detroit and Windsor as well as the existing bridge and tunnel. In May 2010, Transport Canada offered to make a $550 million loan to cover MDOT’s share of the total project cost. Despite this, the Michigan Senate opted to postpone authorising legislation for the project until this year’s legislative session, which began in January.

The controversy surrounding the DRIC is of little concern to ACS, Acciona and Fluor. Their availability payment stream is guaranteed by the province whether or not the new bridge is ever built. In fact, Ontario is already studying ways to connect Windsor-Essex to the existing Ambassador crossing as a contingency. In the meantime, the deal establishes a positive precedent for Canadian road PPPs that should bode well for projects in the pipeline, for example the in procurement Highway 407 East Extension.

Windsor Essex Mobility Group
Status: Closed 15 December 2010
Size: C$1.2 billion ($1.2 billion)
Location: Windsor, Ontario
Description: 30-year availability-based DBFM concession for an 11km limited access highway connecting Highway 401 to a new international crossing over the Detroit River.
Awarding authorities: Infrastructure Ontario and the Ontario Ministry of Transportation
Sponsors: ACS Infrastructure (33%), Acciona (33%) and Fluor (33%)
Equity: C$120 million
Debt: C$954 million construction loan and a C$166 million soft-miniperm
Lenders: BNP Paribas, BTMU, Banesto, Caja Madrid, Credit Agricole, Dexia, ING, Santander, SG and WestLB
EPC contractors: Acciona, Dragados and Fluor
Financial adviser: Royal Bank of Canada
Legal counsel: Fasken Martineau (lenders) and Torys (sponsors)
Technical adviser: Scott & Wilson and URS
Insurance adviser: Willis