The Peninsula Link PPP is not only Australia’s first availability-backed motorway deal, but was a key test of the liquidity of the debt market following the financial crisis. It was tendered at a time of market un­certainty, but the project is notable for its impressive speed of close, with financial close coming less than a year after bidders were invited to the tendering process.

Victoria is widely considered to have the most advanced PPP programme in Australia, and just before Peninsula Link the A$5.7 billion ($5.9 billion) Victoria Desalination project closed successfully in September 2009. Before the project was tendered as a PPP, the state considered other procurement strategies as part of the project’s business case. The state funded design and construction procurement op­tion was used as a benchmark to assess the different strategies, and the state settle on a PPP by the start of 2009.

As the first greenfield road project to close following the crisis, getting the fin­an­cial structure right was crucial. The troubles faced by projects such as River City for example, which eventually went bankrupt early in 2011, made the market very nervous about greenfield projects. Badly conceived patronage forecasts, the Australian term for traffic forecasts, led to the collapse of River City, with traffic levels just a third of their initial predictions. As such, in the case of Peninsula Link the state decided to remove traffic risk from the private sector entirely through quarterly availability payments.

The state issued an invitation for ex­pressions of interest in March 2009. Five groups responded, three of which were issued with requests for proposals. As is the norm for Australian PPP, bidding con­sor­tiums were comprised of a financial institution joining up with construction firms. The three shortlisted consortiums were: Connect South, comprised of John Holland, Transfield and Macquarie; Con­nect 11, comprised of Thiess, Fulton Hogan and Commonwealth Bank of Aus­tralia; Southern Way, comprised of Abigroup, Bilfinger Berger and RBS.

Sponsors needed to line up bank commitments before the project was awarded, and the amount of debt they already had in place played a large role in the selection of a preferred bidder. Peninsula Link placed a significant test on the debt market, there­fore, as it required banks active in the market to raise funding for three separate individual bids. Banks came together for the bid stage in October 2009, and the eventual winner Southern Way had received credit-approved commitments from a club of nine banks. Southern Way and Connect 11 were shortlisted on 9 November 2009 and the Southern Way consortium was selected as preferred bidder on 7 December 2009. Southern Way’s bid carried a project cost of A$759 million, and a net present cost of A$849 million, A$9 million shy of the A$858 million net present cost of the public sector comparator.

Victoria awarded the consortium the 25-year design-build-finance-maintain contract in January 2010. At this time, there was a lot of uncertainty in the market over the length and terms of funding available from banks for PPP projects. Although the desalination project closed after the crisis, it had substantial state support and a much shorter tenor. Most notably, unlike the desalination project, Peninsula Link does not have a refinancing guarantee from the state. Although the state is entitled to a speci­fied share of future refinancing gains, it is not exposed to any future refinancing losses, which will by borne by Southern Way.

The project closed through a A$765 million seven-year debt and equity pack­age. Short tenors are a feature of the Aus­tralian market, particularly following the financial crisis. The bank syndicate com­prises ANZ, National Australia Bank, RBS, BBVA, Santander, Bank of Ireland, Sumitomo Mitsui Banking Corp, Bank of Tokyo-Mitsubishi UFJ and West LB. ANZ, BBVA, NAB, WestLB and RBS all took A$96 million tickets, whereas Bank of Ireland, SMBC and BTMU put in for A$76 million. Santander contributed the remaining A$61.5 million.

The debt margin is 290bp over BBSW during construction dropping to 260bp post-construction. Although this level of pricing was lower than the much larger Victoria desalination project, the cost of funds have dropped further still subse­quently. Financing was rounded off with a A$125 million equity investment, 33.3% coming from Bilfinger Berger and the re­maining 66.7% from three pension funds advised by Access Capital.

The project involves the development of 27km of four-lane highway connecting the Peninsula, the Frankston Eastlink Free­way interchange at Carrum Downs with the Mornington Peninsula Freeway at Mt Martha in Victoria, Australia. Construction is expected to be complete in 2013.

The speed with which financing closed and the ability of the banks to fully meet the project’s debt requirement is a key indicator of the Australian market’s return to health. Government, however, is also likely to conclude that demand risk deals are off the menu, at least for now. Follow­ing on from the success of Peninsula Link, the state is currently looking to tender the A$5 billion Westlink project along similar lines to Pensinsular Link. 

Southern Way Pty Limited
Status: Closed 8 February
Size: A$890 million.
Location: Victoria, Australia.
Description: The construction of a 25km four-lane highway.
Sponsors: Abigroup, Bilfinger Berger, RBS.
Equity: Bilfinger Berger Project Investments (33.3%), State Super (35.29%), Officers Super Fund (19.61%), Prime Super (11.77%).
Lead arrangers: ANZ, BBVA, Bank of Ireland, BTMU, NAB, RBS, Santander, SMBC, WestLB.
Government’s legal counsel: Clayton Utz
Government’s financial adviser: PwC
Sponsors’ legal counsel: Mallesons Stephen Jaques
Lenders’ legal adviser: Freehills