European Ports Deal of the Year 2011: London Gateway
The DP World-sponsored £1.45 billion ($2.27 billion) London Gateway greenfield container port project challenged the bank market. At financial close the project had no committed sources of revenue in place and even if it had, the norm in the container industry is for short-term, non-take-or-pay contracts. The deal also came with no sponsor guarantees, either in terms of future revenue streams or construction risk. Nor was the construction risk mitigated by having a single turnkey contractor.
The £731 million 20-year limited recourse debt facilities back development of a 2.65 million TEU per annum container terminal, the first phase of a new deep-sea container port 40km east of central London on a 1,500-acre brownfield site. Construction has been underway since 2010 and is due to finish at the end of 2013.
The project economics benefit from its proximity to market and efficient road and rail connections; high levels of productivity partly driven by semi-automation; and the best tidal window in the UK, allowing access to ultra-large container ship access.
Although banks can take comfort from a project debt-to-equity ratio of almost 50/50 DP World is investing £693 million of equity and DP World having a low leverage of 2.9x net debt to EBITDA which the project will up to a maximum of 4x, the credit is not straightforward. DP World is not offering construction guarantees and there is no single turnkey engineering procurement and construction risk to mitigate construction risk: Laing ORourke, Dredging International, CargoTech, ZPMC and a number of other contractors are working on the project.
Lead arranged by DNB Bank, HSH Nordbank (insurance), Investec (modelling), KfW-IPEX (technical), National Australia Bank (commercial due diligence), Royal Bank of Scotland (EIB documentation), Societe Generale (EIB documentation), UniCredit (project documentation, facility agent, intercreditor agent and security trustee) and WestLB (finance documentation), the debt comprises £494 million of 20-year commercial bank debt, a £100 million 20-year European Investment Bank direct loan and a £37.5 million standby facility.
There is also a £100 million EIB LGTT tranche - the first time an LGTT has been used on a project with phased opening or the potential for different tariff levels to those used to calculate the base case. The LGTT facility will therefore only underwrite revenue shortfalls arising from underperformance in volumes and not tariffs.
London Gateway
Status: Financial close 6 December 2011
Total project cost: £1.45 billion
Debt: £731 million
Description: Financing of the construction of the first phase of a deep-sea container port in the UK
Sponsor: DP World
Financial advisory: SG CIB; Royal Bank of Scotland
MLAs: DNB Bank, HSH Nordbank, Investec, KfW IPEX, National Australia Bank, Royal Bank of Scotland, SG CIB, UniCredit;WestLB.
Multilateral: EIB
Lender legal counsel: Clifford Chance
Sponsor legal counsel: Allen & Overy; Norton Rose (land and property)
Consultants: Moffatt and Nichol (commercial); Mott MacDonald (technical)
The £731 million 20-year limited recourse debt facilities back development of a 2.65 million TEU per annum container terminal, the first phase of a new deep-sea container port 40km east of central London on a 1,500-acre brownfield site. Construction has been underway since 2010 and is due to finish at the end of 2013.
The project economics benefit from its proximity to market and efficient road and rail connections; high levels of productivity partly driven by semi-automation; and the best tidal window in the UK, allowing access to ultra-large container ship access.
Although banks can take comfort from a project debt-to-equity ratio of almost 50/50 DP World is investing £693 million of equity and DP World having a low leverage of 2.9x net debt to EBITDA which the project will up to a maximum of 4x, the credit is not straightforward. DP World is not offering construction guarantees and there is no single turnkey engineering procurement and construction risk to mitigate construction risk: Laing ORourke, Dredging International, CargoTech, ZPMC and a number of other contractors are working on the project.
Lead arranged by DNB Bank, HSH Nordbank (insurance), Investec (modelling), KfW-IPEX (technical), National Australia Bank (commercial due diligence), Royal Bank of Scotland (EIB documentation), Societe Generale (EIB documentation), UniCredit (project documentation, facility agent, intercreditor agent and security trustee) and WestLB (finance documentation), the debt comprises £494 million of 20-year commercial bank debt, a £100 million 20-year European Investment Bank direct loan and a £37.5 million standby facility.
There is also a £100 million EIB LGTT tranche - the first time an LGTT has been used on a project with phased opening or the potential for different tariff levels to those used to calculate the base case. The LGTT facility will therefore only underwrite revenue shortfalls arising from underperformance in volumes and not tariffs.
London Gateway
Status: Financial close 6 December 2011
Total project cost: £1.45 billion
Debt: £731 million
Description: Financing of the construction of the first phase of a deep-sea container port in the UK
Sponsor: DP World
Financial advisory: SG CIB; Royal Bank of Scotland
MLAs: DNB Bank, HSH Nordbank, Investec, KfW IPEX, National Australia Bank, Royal Bank of Scotland, SG CIB, UniCredit;WestLB.
Multilateral: EIB
Lender legal counsel: Clifford Chance
Sponsor legal counsel: Allen & Overy; Norton Rose (land and property)
Consultants: Moffatt and Nichol (commercial); Mott MacDonald (technical)
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