The Sud Europe Atlantique high-speed rail line between Bordeaux and Tours is one of Europe’s largest ever infrastructure project financings. The Vinci-led LISEA consortium closed the Eu7.8 billion ($10.3 billion) financing for its 50-year PPP concession on 16 June.

In contrast to other availability-based PPPs, the grantor, French railway operator Reseau Ferre de France, decided to incorporate demand risk, which makes the final financing structure the more impressive.

“It’s clearly the biggest deal in France for decades and is roughly the size of Eurotunnel” says Bruno Cantier, partner at Hogan Lovells. “What was new about it was the fact that it was a concession with demand risk, something that was considered as unbankable for a rail infrastructure located within an integrated network. When we started the project, the market consensus was that this project should have been split in two and tendered as an availability- based PFI, reflecting market thinking at that time, which was that the only way forward for project financing large rail infrastructure was to use smaller sized, availability based deals.

The project entails the construction, maintenance and operation of a new high-speed rail line. The new line will be about 340km long with 302km of high-speed track, and will cut the train journey from Paris to Bordeaux from three hours to two. The expected completion date is June 2017.

RFF selected the Vinci-led consortium as preferred bidder in March 2010. The sponsors had planned to close the deal in 2010 but this was pushed forward to the following year. Negotiations are believed to have stalled because the financial sponsors wanted to start seeing a return on their investment before the start of commercial operations, which was not factored into the term sheet. Banks felt comfortable with a change to the structure, but MAPPP, which was representing the state as guarantor, refused.

The deal closed with Eu1.67 billion in 27-year debt provided by a club of nine banks: BBVA, BNP Paribas, Credit Agricole, Dexia, Mediobanca, Santander, SMBC, Societe Generale and Unicredit. Vinci had roughly 50% of the offer in underwritten commitments at best and final offer stage from its supporting banks: BNP Paribas, Credit Agricole, Santander and Societe Generale. The size of their tickets could be scaled back when the other banks joined.

The commercial bank debt is split between uncovered debt and Eu1.06 billion in debt guaranteed by the French state, a first for a French PPP deal. Banks also provided ancillary facilities such as a Eu100 million VAT revolver and a Eu180 million subsidy bridge. The latter was needed as a buffer during the construction period since the subsidies are disbursed at different times.

Commercial banks also provided half of the project’s Eu772 million equity bridge, with the other half coming from the European Investment Bank. The EIB’s portion of the equity bridge benefited from bank letters of credit and corporate guarantees.

The non-grant-based financing is then rounded off with Eu600 million in 40-year debt from the EIB, Eu400 million of which is guaranteed by the state, and Eu757 million from Caisse des Depots et Consignations, which also has a tenor of 40 years and is completely guaranteed by RFF. This is also the first time that RFF has done this.

The deal is structured as a soft mini-perm with cash sweeps hitting 100% on all of the long-term debt by year 10. Those involved in the deal felt that this was a suitable compromise for a concession with demand- based risk, since the sponsors would not be exposed to a full refinancing risk.

Margins on the guaranteed commercial debt start at 175bp and step up to about 250bp by year 10, and on the uncovered tranche they start at 350bp and step up to 420bp within this period. The minimum debt service coverage ratio is 1.61x and the loan life coverage ratio is 1.7x.

Since the project has elements of a brownfield concession, the state felt it could allocate some of the traffic risk to the private sector. There is already an existing high-speed rail service between Tours and Bordeaux, and as such plenty of historical data supporting the traffic line, which helped assuage any sponsor or lender discomfort over the demand-based model.

The project company is to be paid according to the number of trains on the line, as opposed to the number of passengers who use the new line. Difficulties in estimating traffic volumes were mitigated partly through Eu3 billion in subsidies, split between the French state, local authorities and the EU, and Eu1 billion in direct contributions to RFF. Additionally, sponsors have the option to draw on EIB’s loan guarantee instrument, the LGTT.

This is the first time that the EIB has provided such a guarantee in France and the sponsors will be able to draw on its maximum amount, Eu200 million if traffic volumes fall below a certain threshold during the ramp-up phase. The LGTT would have a mezzanine position in the project’s cashflow structure so any amount not paid to banks will be swept.

LISEA
STATUS: Closed 16 June 2011
SIZE: Eu7.8 billion
DESCRIPTION: 340km high-speed rail line
SPONSORS: Vinci Concessions (28.4%), Vinci (5%), AXA II (9.59%), AXA IP (9.59%), CDC Infrastructure (25.41%), Meridiam (22.01%)
MLAS: BBVA (documentation), BNP Paribas (structuring), Credit Agricole (structuring), Dexia (documentation), Mediobanca, Santander (traffic), SMBC (documentation), Societe Generale (structuring), Unicredit (technical)
RFF’S FINANCIAL ADVISER: Natixis
MAPPP’S FINANCIAL ADVISER: Compagnie Benjamin de Rothschild
SPONSORS’ FINANCIAL ADVISERS: Credit Agricole, Societe Generale
RFF’S LEGAL ADVISER: Hogan Lovells, Linklaters
MAPPP’S LEGAL ADVISERS: Freshfields, Paul Hastings
CDC’S LEGAL ADVISER: Herbert Smith
EIB’S LEGAL ADVISER: Willkie Farr & Gallagher
SPONSORS’ LEGAL ADVISER: Allen & Overy
LENDERS’ LEGAL ADVISER: White & Case
SPONSORS’ TRAFFIC ADVISER: Egis Mobilite
SPONSORS’ INSURANCE ADVISER: SIACI
SPONSORS’ TAX ADVISER: Landwell et Associes
SPONSORS’ MODEL AUDITOR: PricewaterhouseCoopers
EPC CONTRACTOR’S LEGAL ADVISER: Salans
LENDERS’ TRAFFIC ADVISER: SDG
LENDERS’ TECHNICAL ADVISER: Atkins
LENDERS’ INSURANCE ADVISER: AON
EPC CONTRACTOR: COSEA (joint venture including Vinci subsidiaries)