On 26 June, Aucel, a consortium comprising Copasa (70%) and Extraco (30%), closed a Eu124.4 million ($154.38 million) financing for the Celanova shadow toll road. The deal is structured as a soft miniperm, but it is not a soft miniperm in the conventional sense, since cash sweeps start at 100% at the outset of repayments. The deal shows that toll road financings in Spain can only be closed on the most conservative of terms.

The project entails the construction of a new 18.74km fast-lane dual carriageway in the Spanish province of Ourense under a 30-year design, build, finance and maintain concession. The road, once completed, will run between the A52 motorway and the town of Celanova. The granting authority, Xumpa de Galicia, will collect toll payments on behalf of the concessionaire and then distribute the proceeds to the special purpose vehicle on a monthly basis.

The deal dates to before the onset of the last financing crisis and so the concession has undergone several changes to accommodate market vagaries. Copasa was appointed preferred bidder in April 2008, beating out competition from four other consortiums, led by Dragados, FCC, Isolux Corsan and San Jose. The sponsors started work on the road in May 2009 and have been financing it on-balance sheet.

The economic crisis in Spain has meant that lender appetite for long-dated debt is not what it used to be. Several Spanish lenders’ costs of funding have soared following rating agency downgrades. Spanish toll road financings have become an increasingly difficult sell, because several of the projects that closed in Spain before the crisis have since been plagued by rising costs and falling traffic levels.

Four banks – Banesto, Banco de Sabadell, BBVA and La Caixa – were mandated towards the beginning of 2011, but lender appetite proved to be thin, at least based on the sponsors’ initial proposal. This prompted Copasa to seek an upward revision of the tolls levied on heavy goods and light commercial vehicles, which the granting authority accepted in February this year.

The deal closed in June through Eu52 million in 20-year senior debt. Lenders made their first disbursement to the project company in July, following the fulfilment of final conditions precedent. The sponsors have used the proceeds to reimburse themselves for the equity they have already contributed and also to fund the final stage of construction, which is due to be completed in October this year.

The senior debt is split between a Eu48.5 million term loan and a Eu3.5 million performance incentive facility. The latter will be drawn if traffic volumes prove to be more robust than anticipated after the initial ramp up phase. Its inclusion is unusual, and s the result of a scaling-back in ticket allocations after banks went to credit committee.

Although the senior debt has a legal maturity of 20 years, cash sweeps begin at 100% and there are a slew of other lender-friendly terms, which should prompt the sponsors to seek an early refinancing. Lenders benefit from full recourse to the sponsors’ balance sheet during the ramp-up phase and also a pledge from the sponsors to inject an additional Eu17.5 million in equity should traffic volumes fall below the base case.

This sponsor undertaking in effect functions as the opposite to the performance incentive facility. The former is designed to add comfort to lenders in the event that traffic volumes prove to be less robust than initially forecast, whereas the latter is designed to reward the sponsors and to allow them to deleverage in the event that initial forecasts prove to be too conservative.

This hinges on the publication of the company accounts for fiscal year 2014 and the audit of those accounts, which is scheduled to be completed in 2015. If the debt service coverage ratio falls below 1.30x this will trigger a recalculation of the base case, which means that the sponsors will have to contribute enough equity to allow the project company can maintain its coverage ratios. The average DSCR under the base case is 1.35x.

The sponsors have so far contributed Eu42.9 million in equity, which was set at this high level to assuage lenders’ concerns over the volume risk. The remainder of the financing comprises a Eu12 million VAT facility, which has a tenor of 1.5 years and a bullet at maturity. For the long-term debt, repayments start following a 6-month grace period at the beginning of operations and are quarterly.

Lenders managed to extract from the sponsors fairly healthy margins, which start at 450bp over Euribor and rise to 475bp following a step-up towards the beginning of operations. Banks’ exposure to the project varies slightly. BBVA and La Caixa are both lending Eu21 million and Banco de Sabadell and Banesto are lending Eu16 million and Eu6 million, respectively.

Before the onset of the financial crisis, Spain embarked on a series of new toll roads projects. Several of these projects have experienced lower than expected traffic volumes and many are about to hit a wall of refinancing, since they were financed on a mini-perm basis. Celanova shows that financings can still be closed, but not without a number of concessions to lenders, and high equity contribrutions.