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 to date. An 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 following 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 parkland. Infrastruc­ture Ontario and the province’s Min­istry of Transportation are 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 but will rise to 300bp 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 be repaid through a combination of milestone, acceptance and availability payments from the grantors.

The deal is the second in Canada in 2010 to use long-dated bank debt instead of a bond. 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 included 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.

Several banks treed – 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 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 crunch.

Lenders also expressed few reservations about 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 2010. 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 also 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 suggestions in the Michigan state legislature that a second Ambassador span would be a more cost-effective solution to cross-border congestion.

Rick Snyder, Michigan’s new governor, announced his support of the $2.2 billion DRIC in his state of the state speech on 19 January. He cited an agreement with the US Federal Highway Administration that a $550 million loan from Transport Canada qualifies for matching federal funding and promised that state taxpayers would not be responsible for any of the project’s debt. The proposal still must be approved by the state legislature and the grantor, MDOT, must address concerns among potential sponsors that the project is not viable 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, 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.

The controversy surrounding the DRIC is of little concern to ACS, Acciona and Fluor. Their project’s availability payment stream is guaranteed by the pro­vince whether or not the new bridge is ever built.

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