DEAL ANALYSIS: R4 Ghent
The 30-year contract entails the design, building, financing and maintenance of a 4km stretch of the Ghent south city ring road, which will help reduce the risks associated with several dangerous crossings. The concession, which is availability-based, is part of a larger initiative on the part of the Flemish government to complete a number of missing links in the regions road infrastructure. The government will make milestone payments during construction, and then quarterly payments during operations.
Via-Invest, a joint venture between PMV (51%) and the Agency for Roads and Traffic and the Department of Transport and Public Works (49%) tendered the project in 2010. The deal is slightly unusual because it uses the DBM+F model, under which the tender for the financing is kept separate from the design, build and maintain contract until the preferred bidder stage. The Eu200 million Kempen North-South contracts, which closed in October 2011, followed this model.
Lenders persist in complaining that this separation does not sufficiently allow banks to analyse the operational risk on the project until the preferred bidder stage, and adds another layer of confusion to Belgiums already fragmented procurement process. However, the grantors apparently chose the bidding structure since it allowed them to best evaluate the merits of the bidders.
In spring 2011 the grantor shortlisted two bidders for the financing contract: Dutch Infrastructure Fund, ING, KBC and SMBC; and DG-Infra, Dexia Bank Belgium, BNP Paribas Fortis and NIBC. Four bidders were shortlisted at the same time for the design, build and maintenance contract: Besix, Heijmans, Stadbader and Eiffage; Jan de Nul, Aswebo and Kumpen; Van Laere, Wegebo and VBG; and CEI-De Meyer and Betonac, two subsidiaries of the Royal BAM group.
The grantor then settled on Besix, Heijmans, Stadbader and Eiffage for the DBM contract in September. Shortly after, on October 7, the two shortlisted consortiums for the financing contract submitted best and final offers. NIBC pulled out shortly before bids were due, after apparently having difficulty in gaining credit approval. SMBC also pulled out of the other consortium due to difficulties with the contractual structure, according to a source familiar with the process.
In November, Via-Invest chose DG-Infra to provide equity to the project company, with Dexia Bank Belgium and BNP Paribas selected on the debt financing. What followed was a streamlined negotiation period between the two preferred bidders as they reconciled their different views on the project. During this period the losing bidders were waiting in the wings in the event that the two consortiums could not agree. After these negotiations the region officially awarded the project to both consortiums on 27 January.
The deal closed with Eu85.5 million in 9- year project debt split equally between the two banks. The margins on the debt are a little under 250bp over 3-month Euribor, while the minimum average debt service coverage ratio is around 1.25x. There are no cash sweeps on the deal nor are there step-ups in the margins. First drawdown on the debt has already taken place.
In adherence to one of the peculiarities of the Belgian PPP market, the deal is structured as a joint venture between DG- Infra and PMV on a 75:25 basis. Dexia Bank Belgium and BNP Paribas Fortis are providing a Eu7.5 million bridge loan to DG-Infra during the 32-month construction period, while PMV is funding its equity contribution during construction through an internal bridge loan. Once the project is operational, the sponsors will contribute the equivalent amount in equity.
The use of a hard miniperm structure is a rare one in Belgium. In August 2009, the Eu180 million Brabo 1 tram project in Flanders closed through a 10-year hard miniperm. Unlike Brabo 1 and the forthcoming Livan 1 tram project, though, the sponsors did not benefit from a refinancing guarantee from De Lijn, the transport arm of the Flemish government.
The grantor was apparently impressed at the winning consortiums use of a hard miniperm financing and this was one of the factors in selecting it, since the losing bidder went for a standard long-term financing. That the grantor was willing to accept the refinancing risk in exchange for more aggressive margins is an important milestone.
Both banks are providing interest-rate hedging for a duration of 30 years, which will help mitigate some refinancing risk. The swaps are structured with a cash settlement so that after the loan matures at year 9, the banks will pay the special purpose vehicle the difference if interest rates rise, and if they fall, the SPV will in turn pay the banks the difference.
A handful of banks continue to dominate the Belgian PPP market: BNP,Dexia,KBC, ING, NIBC and SMBC. Many of these banks are struggling to raise long-term debt in the context of both the ongoing eurozone crisis and Basel III, which will force banks to better match their funding with their assets. The use of a hard mini-perm could help increase competition for funding in Belgium, and may find wider application throughout Europe.
R4 Ghent
STATUS: Financial close 7 February 2012
SIZE: Eu95.5 million
DESCRIPTION: Upgrading of a 4km stretch of the Ghent south city ring road in Belgium
GRANTOR: Via-Invest
SPONSORS: DG-Infra (75%), Participatie Maatschappi Vlaanderen (25%)
MANDATED LEAD ARRANGER: BNP Paribas Fortis, Dexia Bank Belgium
GRANTORS FINANCIAL ADVISER: Rebel Group
GRANTORS LEGAL ADVISER: Allen & Overy
F CONSORTIUMS LEGAL ADVISER: NautaDutilh
F CONSORTIUMS FINANCIAL ADVISER: KPMG
DBM CONSORTIUMS LEGAL ADVISER: DLA Piper
TECHNICAL ADVISER: Mott MacDonald
INSURANCE ADVISER: Aon
EPC CONTRACTORS: Besix, Heijmans, Stadbader and Eiffage
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