The Eu300 million ($380 million) E18 KoskenkylaKotka motorway in Finland in not only the countrys largest road PPP to date but also the fastest to close its financing: Documents were signed just over three months after the contract was awarded. While the deal is not particularly novel, the basis for its success is less about complex structuring and more about utilising experience from previous pathfinder projects.

The Tieyhtio Valtatie 7 consortium (Meridiam Infrastructure, YIT, Destia and Ilmarinen) won the KoskenkylaKotka contract on 25 August 2011 with financial close on 8 December 2011, which, according to Aapo Nikunen, vice-president and group treasurer at YIT, is certainly a record in Finland.

The project for the construction and maintenance of 53km of motorway over a 15-year period was backed with a Eu240 million package from the European Investment Bank (EIB), the Nordic Investment Bank (NIB) and local lender Pohjola Bank. The three lent Eu134 million, Eu91 million and Eu44 million, respectively. Nikunen points out that the project is the third (and so far largest) road PPP to reach financial close in Finland.

The first road PPP was the upgrade of 69km of the E75 motorway between Jarvenpaa and Lahti in 1996. The Skanska-led special purpose vehicle Tieyhtio Nelostie won the contract with a $100 million senior debt package coming from Postipankki and the NIB. The pivotal part of this deal was, for the first time, the drafting of a loan agreement that mirrored international project finance documentation but complied with Finnish law.

The new agreement was the foundation for PPP project financings in Finland but, while the E75 established a new non-recourse loan structure, it was not until the E18 Muurla Lohja in 2005 that a new contractual and financial benchmark for design-build-finance-operate deals in the country was established. The Koskenkyla Kotka project contract and deal structure were very similar to the E18 Muurla Lohja scheme from 2005; which helped in developing the deal at a quick pace, Nikunen notes.

Contractually, the E75 the scheme was based on shadow toll payments, while the E18 went for pure availability payments, thus removing traffic risk and shifting the remuneration criteria onto functionality and safety. The most recent E18 deal is also availability-based, following the implementation of its predecessor.

The first E18 concession benefited from the heavy involvement of multilaterals; the EIB and NIB put in Eu153 million and Eu77 million, respectively, of the Eu307 million project debt. The two banks have become solid backers of Finnish deals and recently provided all the debt on the Eu800 million Helsinki Metro extension, which, along with the established blueprint, is thought to have boosted confidence on E18.

The latest E18 deal had an even more prominent role for the EIB and NIB. While the earlier deal featured an international commercial tranche, provided by Royal Bank of Scotland, Svenska Handelsbanken and Nordea, worth Eu77 million, the commercial debt for Koskenkyla-Kotka came purely from a Finnish lender, Pohjola.

The multilateral involvement, even if it took the form of parallel direct loans rather than guarantees, also helped Pohjola step up to provide bridging facilities; a Eu16.7 million inflation bridge loan, a Eu67.7 million equity bridge and a Eu6 million modification works standby facility. This allowed the sponsors to limit their upfront equity contribution to just Eu500,000, before a Eu67.7 million shareholder loan kicks in post-completion to repay the equity bridge.

Early involvement of the EIB and NIB was crucial too, as was regular communication, says Nikunen. "After the preferred bidder announcement, we held regular meetings with the Finnish Transport Authority, the banks and the advisers, which later became more frequent. Pohjola coordinated communication with the lenders. The biggest challenge was getting relevant parties input and keeping them in the loop."

The sponsors also benefited from having a structure in place from a failed bidding procedure earlier in 2011. The group was in the running for the Eu230 million Kokkola-Ylivieska rail PPP a 76.5 km twin- track rail project between Kokkola and Ylivieska that was put on ice earlier in the year. Tieyhtio Valtatie, however, was able to incorporate some of the aspects of that bid to the E18 process.

The E18 KoskenkylaKotka shows that Finnish PPPs are marketable in the long run. The groundwork from previous deals provides a strong foundation and, while the PPP pipeline in Finland is hardly clogged, the latest financing bodes well for future PPPs, including a possibly resurrected Kokkola-Ylivieska rail.

Tieyhtiö Valtatie 7 Oy
STATUS: Financial close 8 December 2011
TOTAL PROJECT COST: Eu300 million
DESCRIPTION: Construction and maintenance of 53km of motorway between Koskenkylä and Kotka in Finland
SPONSORS: Meridiam Infrastructure, YIT, Destia and Ilmarinen
DEBT: Eu240 million
DEBT PROVIDERS: EIB, NIB and Pohjola Bank
MARGIN: 200bp-plus
MATURITY: 15 years
LEGAL ADVISERS TO THE LENDERS: Roschier and Clifford Chance
LEGAL ADVISER TO THE SPONSORS: Castren & Snellman
LEGAL ADVISER TO THE GOVERNMENT: Hannes Snellman (local) Berwin Leighton Paisner (international)
FINANCIAL ADVISER TO THE SPONSOR: PwC
FINANCIAL ADVISER TO GOVERNMENT: Inspira
GOVERNMENT TAX AND RISK ANALYSIS: Ernst & Young
GOVERNMENT INSURANCE ADVISER: Aon