DEAL ANALYSIS: N33
The project entails the upgrading of a 38km stretch of the N33, which connects Assen and Zuidbroek in the north-east of the Netherlands, under a 20-year plus construction design, build, finance and maintain concession. The BAM-led consortium will be responsible for widening the existing two-lane road to a dual carriageway as well as several other improvements, including new traffic interchanges and roundabouts.
The project is designed to reduce congestion on the existing road and offer better transport links to the region, by feeding traffic to the A828 motorway as well as creating an optional link to the A7 motorway. BAM and PGGM will be remunerated through quarterly availability payments from the beginning of operations, which are scheduled for the second quarter of 2015.
The project dates back to 2008, when the Dutch Ministry of Finance held talks with several pension funds about launching a pilot project to test the appetite of institutional investors for senior project debt. Rijkswaterstaat, the Dutch procuring authority for transport and water works projects, put the project out to tender in May 2011 and prequalified ten bidders in September.
The ten prequalified bidders were Ballast Nedam; BAM PPP and PGGM; Boskalis; Fluor; Gebr van der Lee; Heijmans; John Laing and Dura Vermeer; Macquarie and Johann Bunte; Strabag and Mobilis; and VolkerWessels. In December, the grantor cut this number to three bidders BAM PPP and PGGM; John Laing and Dura Vermeer; and VolkerWessels before starting competitive dialogue.
It was during this phase that the institutional investor tranche began to take shape. The Ministry of Finance held talks with several pension funds about participating in the deal, although APG was ultimately the only one willing to participate. The grantor gave the three shortlisted bidders the option of submitting bids that included a stapled financing for up to 70% of the senior debt.
The three bidders submitted best and final offers on 31 October and all three opted to use the financing on offer from APG because of the advantages in tenor and pricing that it offered. BAM and PGGM went into the preferred bidder stage with support from three commercial lenders, BTMU, KfW-IPEX and Rabobank, plus APG, and were named preferred bidder in early September.
What followed was a streamlined negotiation process leading up to financial close. The Netherlands is one of the few jurisdictions in Europe that still requires fully underwritten offers from bidders at the BAFO stage. Whether this will prove practical for upcoming projects that include capital markets solutions is doubtful, but this stipulation meant that BAM and PGGM were able to close the deal very swiftly.
The deal closed through Eu125 million in non-recourse debt, comprising a Eu80 million construction bridge loan, a Eu32.5 million project facility and a Eu12.5 million equity bridge loan. The construction bridge loan is refinanced during operations with an inflation-index tranche from APG. Both the project facility and the institutional investor tranche have a tail of about 6 months. Banks are lending on a pro rata basis across each tranche.
The inclusion of an inflation-indexed tranche was a crucial in attracting APGs commitment to the project. The inflation protection from the Dutch government will roughly compensate APG for any adverse movements in base rates between close and funding. The Ministry of Finance makes this payment directly to APG, keeping it outside the projects cash flow waterfall.
Both bridge loans have bullet repayments, while the repayments on the long-term facilities are quarterly and begin at the start of operations. Both long-term facilities are fully amortising and do not feature cash sweeps, which means that the sponsors are not exposed to any refinancing risk. The pricing on the project facility is rumoured to be between 250bp and 300bp over Euribor.
The Ministry of Finance intends to review the project with APG after the start of operations and, if successful, will roll out several other projects using a similar structure. Construction is due to start on the N33 in February next year, once the sponsors have received all the necessary permits, and the project should be operational by the second quarter of 2015.
BAM-PGGM Infrastructure Cooperatie
STATUS
Financial close 21 November 2012
SIZE
Eu125 million
DESCRIPTION
Financing for the upgrading of a 38km stretch of the N33 between Assen and Zuidbroek in the Netherlands
EQUITY
Eu12.5 million, funded through a bridge loan
DEBT
Eu80 million construction bridge loan (to be refinanced with an institutional tranche, and Eu32.5 million project facility
GRANTOR
Rijkswaterstaat
BANK LENDERS
BTMU, KfW-IPEX and Rabobank
INSTITUTIONAL LENDER
APG
SPONSORS
BAM PPP, PGGM
GRANTORS FINANCIAL ADVISER
PricewaterhouseCoopers
GRANTORS LEGAL ADVISER
Pels Rijcken & Droogleever Fortuyn
SPONSORS FINANCIAL ADVISER
KPMG
SPONSORS LEGAL ADVISER
DeBrauw Blackstone Westbroek
LENDERS LEGAL ADVISER
NautaDutilh
LENDERS TECHNICAL ADVISER
Mott MacDonald
LENDERS INSURANCE ADVISER
AON
LENDERS MODEL AUDITOR
BDO
EPC CONTRACTOR
Koninklijke BAM Groep
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