The A9 is only the second of the latest slate of A-models to reach close, and the first to be backed by availability payments for the life of the concession. The European Investment Bank provided half of the debt for the A9’s predecessor, the A8 II, but commercial banks provided all of the required debt financing for the A9. Bank appetite for the deal and the speed with which the project reached close indicate that availability structures could serve as a blueprint for future German road deals.

The 20-year contract entails upgrading and widening a 46.5km stretch of the A9 road, which connects Bavaria to Berlin. Unlike previous A-models, where payments were based on the amount of tolls on heavy goods vehicles received, DEGES, the project management company owned by federal and state governments, compensates the project company based on the availability of the road. The section of the road is located in the state of Thuringia between Schleiz and Triptis in the territory of the former German Democratic Republic. The low levels of traffic meant that the grantor felt that an availability structure would provide a more attractive revenue stream to private investors.

The proportion of the payments linked to long-term financing is not inflation-linked, but that tied to operations and maintenance is CPI-indexed. The sum of these payments is subject to both operating performance and the availability of the lanes. Any restriction on the use of the lanes will result in a reduction in the amount paid to the special purpose vehicle. There will also be a catalogue of performance-related indicators, and failure to meet these will accumulate points, with the amount paid reduced if the project company accumulates points beyond a certain threshold.

The use of an availability payment structure is in part the result of an inquiry by the public sector into the first wave of A-models, which was announced by the then-federal minister of transport, Wolfgang Thiense, in June 2008. One suggestion was an adjustment to the concessionaire’s share of any traffic risk, with proposals that included elements of a shadow toll (A8 II) or private operations backed by availability payments (A9).

The direct revenue stream from the German federal government meant that the project attracted a lot of sponsor interest. Bilfinger Berger, Hochtief/Strabag and PORR failed at the first bid stage, while DEGES shortlisted two bidders for the project in February this year: Vinci/BAM, advised by Deutsche Bank and Max Boegl, advised by Deloitte.

What followed was a streamlined negotiation period, with best and final offers due by June. The two bids were then judged on a points-based system, which looked at both construction price and technical capabilities. The grantor chose the Vinci/BAM consortium as preferred bidder in August. The winning bidder then had a tight eight- week deadline to close the deal.

The project, which went from BAFO stage to close in a space of three months, is a good indication that the use of alternative forms of financing in public procurement need not be the cause of delays. An unsuccessful legal challenge by the losing bidder, Bilfinger Berger/John Laing, delayed the A8 II, but in spite of the narrow margin by which Vinci/BAM won the bidding for the A9, no similar legal proceedings were forthcoming.

Reinhold Meister, which was awarded the engineering, procurement and construction contract, along with Eurovia and Wayas & Freytag Ingieurbau in August, pulled out of the consortium providing the equity just before financial close. The small construction company intended to take a 5% stake in the project company, but was ultimately unwilling to take on the burden. In spite of this the project still managed to close nine days earlier than the deadline stipulated in the concession agreement.

The commercial bank debt was a small part of the overall financing package, and while eight banks expressed an interest in the deal, producing a healthy oversub­scription, the sponsors, who provided Eu6 ­million in equity each, only chose two banks in the end. Debt financing is a single senior term loan of Eu120 million, with lead arrangers KfW and BBVA each taking an equal ticket. The loan is fully amortising and has a tenor of 19.5 years. First drawdown on the debt was in October.

There are no plans for the time being for syndication, though this is something the banks will review when the road enters operations. Margins on the debt are fairly generous, however. The pricing during construction starts at below 180bp over Euribor, though it does not exceed 200bp for the life of the loan. Step-ups occur once the construction period is complete in 2014 and every 5 years after that.

The project benefits from a Eu88 million subsidy (plus VAT) from the government, which will be paid in three instalments during the construction period. This certainly contributed to tighter margins, though the sponsors were also lucky that pricing was set at best and final offer stage before the problems in the eurozone gathered speed, notes one source close to the deal.

Whereas previous A-models have typically relied on EIB financing, and quite often a loan guarantee instrument, to get projects off the ground, the sponsors decided against involving the EIB this time round. They were fortunate that the project size, in comparison with other A-models, did not require the EIB’s lending capacity, and the availability structure made it easy to find commercial capacity.

The German PPP market still lags behind some of its European peers. According to a report published in 2010 by EPEC, a joint venture involving the EIB and the European Union, Germany only ranked 8th in total investment volume for PPP. An alteration in the concessionaire’s share of the traffic risk might persuade private sector lenders to offer more competitive financing, but it does not remove some of the existing obstacles – both political and economic – to the increasing usage of private financing in co-operation with public sector bodies.

The next deal in the A-model pipeline – the A7 – will entail the upgrading of a section between Hamburg and Bordesholm in Schleswig-Holstein of the 963km motorway that bisects Germany from north to south. The tender for the project is likely to be launched some time before the end of the year, and will be availability-based. ■

Gateway Thüringen
Status: Financial close 21 Sep 2011
Size: Eu220 million
Location: Germany
Description: Upgrading of a 46.5km stretch of motorway.
Grantor: DEGES
Sponsors: Vinci and BAM
Debt: Eu120 million
Lenders: KfW, BBVA
Sponsor legal adviser: Hogan Lovells
Sponsor financial adviser: Deutsche Bank
Lender legal adviser: Clifford Chance
Lender technical adviser: LeighFisher
Grantor legal adviser: Norton Rose