The financing for Cedisna’s C25 Eix Transversal is the first use of the Euro­pean Investment Bank’s loan guarantee instrument for TEN transport projects (LGTT) in Spain. It is also the largest shadow toll road that the Spanish autonomous com­munity of Catalonia has ever procured, and the most technically demanding.

The financing is one of a dwindling band of road deals that can credibly trace their roots to before the crisis, and the financing followed a hard-fought but constructive process of rebalancing the concession for the road with its grantor, the Generalitat de Catalunya. This re­balancing could not have happened with­out the support from the EIB and the spon­sors and lenders’ willingness to stretch their tolerances.

Cedinsa is a consortium of FCC (27.2%), Comsa Emte (17.6%), Copisa Industrial (17.6%), Copcisa (17.6%) and CatalunyaCaixa (20.0%), which won the 33-year shadow toll concession in October 2007. The sponsors had to face requirements that they tender roughly 38% of the work to third parties. They solved this by including a stricter-than-normal performance regime for subcontracts, higher solvency requirements, and greater levels of sponsor support for cost overruns.

But as the crisis hit, the sponsors and government were faced with the probability that traffic forecasts would need to be revised downwards. The grantor agreed to provide a higher per-vehicle shadow toll, and also provide a guarantee of traffic levels after the term of the debt, encouraging the sponsors to stick by the concession. The grantor’s obligations under the shadow tolling arrangement are also capped.

The biggest factor in allowing the sponsors to close with lenders without resorting to a miniperm was the presence of the EIB and its provision of the LGTT to the project. The LGTT, which is available only to projects designated as TENS , or trans-European networks, is essentially a contingent subordinated loan. It is designed to reduce senior debt leverage in the event of weakness in traffic volumes during the ramp-up period.

The EIB provides the guarantee, in return for a premium, for a period of between five and seven years (C25’s availability period is understood to be nearer seven). If the project suffers a drop in traffic volumes of pre-defined severity, the guarantee would trigger, and the EIB would contribute at once a predetermined amount of mezzanine debt, which would be used to pay off senior debt. The triggers for the guarantee, as well as its size, have been defined in such a way as to maintain a healthy debt service coverage ratio on the senior debt. The base case DCSR is 1.25x, and the average life on the 24-year senior debt is 16 years.

The EIB is also a substantial player in the senior debt, pro­viding Eu200 million ($275 million) on a pari passu basis with commercial lenders LaCaixa (Eu200 million) and ICO (Eu87 million). The margins on the senior debt are roughly 300bp over Euribor, while the pricing on the EIB LGTT mezzanine debt is between 200bp and 250bp over its cost of funds.

Rounding out the project’s Eu815 million cost is Eu304 million in funding from the Catalan government, Eu46 million of sponsor subordinated debt and Eu59 million of equity. The government funding breaks down into Eu174 million in precompletion milestone payments, another Eu80 million as a final completion payment, and a Eu50 million equity loan.

The government agreed to provide the equity loan as part of the concession re­balancing, and the debt is subordinate to the senior and, if drawn, LGTT debt. If the LGTT debt is drawn, the project would have five ranks of capital, an unusual degree of complication for a road fin­anc­ing, though not unusual in securitization. Documenting both actual and hypothetical intercreditor protocols was com­plex and time-consuming. The struc­ture also includes a debt service reserve account funded at close from debt proceeds and a big reparations reserve account funded from project cashflows

But the LGTT allows the grantor to provide lower levels of revenue support during the term of the debt, and the equity loan allows it to recover some of its cash support to the project. The picture that emerges from the final deal structure is of a genuine attempt by all parties to meet in the middle and cover the loss of bank appetite for long-term traffic risk.

There are some obvious limitations to the wider application of the LGTT, not least that it is only available to the grant­ors and sponsors of TENS projects. Never­theless, there is some room to improve the application of the product, rather than have it rolled out as part of an in-progress concession renegotiation.

Oriol de Soto Salvans, the chief finan­cial officer of the concession company, suggests one obvious step – to include the LGTT during the tender stage and allow sponsors to bid on the basis of an LGTT-enhanced senior debt model. It would, at the very least, get banks to think early and constructively again about the measurement and pricing of traffic risk.

Cedinsa
Status: Financial close 29 July
Size: Eu815 million
Location: Catalonia, Spain
Description: a 33-year shadow toll concession. Construction comprises dualling 150km of highway connecting Catalonia from east to west through Manresa and Vic
Grantor: Generalitat de Catalunya
Sponsors: FCC (27.2%), Comsa Emte (17.6%), Copisa Industrial (17.6%), Copcisa (17.6%) and CatalunyaCaixa (20.0%) 

Mandated lead arrangers: La Caixa and ICO 

Multilateral: European Investment Bank
Commercial bank counsel: Cuatrecasas Gonçalves Pereira
Sponsor and borrower counsel: Uria Menendez
EIB counsel: Roca Junyent
Technical adviser: Typsa 

Model auditor: Deloitte
Traffic consultant: ALG