There was no other infrastructure deal in Europe last year to rival the Eurasia Tunnel, sometimes called the Bosphorus Car Tunnel or the Istanbul Strait Road Tube Crossing. The deal took four years from tender to the signing of its bank debt, but shook off the fallout from the 2008 global financial meltdown and broke new ground in the project finance market.

The project is the first major PPP to close under Turkey’s new BOT regulations, and includes the first use of a minimum revenue guarantee in Turkey; the first use of an implementation contract with step-in rights for lenders based on a direct agreement with the Turkish government; the first use of a debt assumption agreement with the Turkish government in the case of default by the concessionaire; and is the first Turkish infrastructure financing that has managed to get lenders comfortable with an 18-year door-to-door tenor (with a 52-month availability period and 3-month grace period).

With the Turkish government providing so much comfort to project lenders, not only did the heavily export credit agency- and multilateral-backed financing pull off a record tenor, it also came in priced at a very competitive 350bp over Libor (pricing is static over the maturity with no step-ups or downs), with a 220bp upfront fee for lenders.

Despite these achievements, the deal precisely mirrors the global downturn in project financing. Not only did the crash hit midpoint between the project being tendered in June 2008 and awarded in December to the ATAS consortium, but fallout from the crisis saw the departure of what was meant to be one of the project’s lead lenders – WestLB – and the eventual retreat of ING Bank from the lender line-up.

Then, in April 2009, UniCredit replaced the project’s original financial adviser – Ernst & Young –after initial approaches to the bank market met with a poor response. In short, Eurasia Tunnel was not an easy deal to close. The debt assumption agreement required considerable development and renegotiation throughout the arranging process and the introduction of the new BOT law in 2011, the provisions of which had been taken into account but were not concrete in the original structuring, required changes, primarily to the amount of borrowing, which was reduced by 16% because of a VAT exemption.

The $1.45 billion project (inclusive of $814 million in construction costs, design, development and financing) is a must-have for the city of Istanbul, which contributes around 22% of Turkish GDP and is Europe’s biggest city. Both of the existing bridges across the Bosphorus – the Bosphorus Bridge and Fatih Sultan Mehmet Bridge – are already running far above their planned capacity and traffic across them is running at a compound annual growth rate of 5%.

The ATAS consortium originally comprised the final two sponsors – SKE&C and Yapi Merkezi – along with Samwhan, Hanshin, NamKwang and Kukdong. SKE&C and Yapi Merkezi gradually took over the other shareholdings during the development phase, with ATAS finishing as a 50/50 venture between the pair.

The project involves building a 5.4km car tunnel under the Bosphorus and 5.4km and 3.8 km connection roads either side. Herrenknecht is providing the tunnelling machine and both project sponsors – Yapi Merkezi and SKE&C – are also the EPC contractors under a lump-sum, fixed-price, date-certain contract (there are no penalties in place for late delivery but the operation period is reduced by the same amount as the delay). The tunnel will have two lanes running in either direction and have a capacity for 110,000 crossings per day

The concession, signed between the sponsors and grantor – the Turkish Ministry of Transport General Directorate of Railways, Harbors and Airport Construction (DLH) – on 13 January 2009, and runs for 25 years, 11 months and nine days, with an additional construction period of four years and seven months. With the Turkish government providing a minimum revenue guarantee (MRG), the financial model produces 100% debt service coverage. The MRG is equivalent to 25 million one-way vehicle crossings per year at a $4 equivalent lira-denominated toll (indexed to US CPI) per vehicle– roughly $100 million per year. The volume of guaranteed traffic increases by 0.5% per year over the life of the concession.

The $1.24 billion financing comprises $960 million of senior debt and $278 million of equity. The record 18-year tenor still leaves a 12-year tail on the concession, which is more than adequate to keep lenders comfortable. The debt is split between a $200 million EIB guarantee facility (comprising letters of guarantee from Garanti, Isbank and Yapi Kredi); a $180 million K-Sure covered tranche with SMBC, Mizuho and Standard Chartered as lenders; a $150 million EBRD loan; a $150 million EIB loan; a $30 million Kexim covered facility with SMBC as lender; and a $250 million Kexim direct loan. Both the K-Sure and Kexim backed tranches come with 100% cover.

The deal, despite the revenue guarantee, still has a debt service reserve account in place covering six-month debt service. The deal came slightly too early for its pricing to benefit from an increase in Turkey’s sovereign rating to investment grade in late 2012. But going forward, and if Moody’s comes into line with the other agencies, future Turkish PPP infrastructure projects should be significantly cheaper than past deals and are likely to eventually find their way into the bond market. 

Avrasyatuneli Corporation
STATUS
Signed 8 December 2012. Full financial close end of January 2013 followed 5 working days later by first drawdown
DESCRIPTION
30.5 years (including 55 months construction) BOT concession for the development of 5.4km car tunnel under the Bosphorus and 5.4km and 3.8km connection roads either side.
CONCESSION GRANTOR
Republic of Turkey Ministry of Transport General Directorate of Railways, Harbors and Airport Construction (DLH)
SPONSORS/EPC
Yapi Merkezi and SKE&C (each 50%)
TOTAL DEBT
$960 million
FINANCIAL ADVISER
UniCredit
LENDERS/ECAs
EIB; EBRD; IsBank (account bank); Yapi Kredi (account bank); Garanti (account bank); SMBC (hedging and modelling); Standard Chartered (hedging and documentation); Mizuho; KEXIM; K-Sure
OTHER BANK ROLES
Deutsche Bank (hedging)
LENDER LEGAL COUNSEL
Clifford Chance; Fidan & Fidan (local)
SPONSOR LEGAL COUNSEL
Skadden Arps Slate Meagher & Flom; Herguner Bilgen Ozeke
LENDER TECHNICAL ADVISERS
Arup (technical and traffic); JLT (insurance)
BORROWER TECHNICAL ADVISERS
Leigh Fisher (traffic); Marsh (insurance); PwC (tax and audit); ERM (environmental); Parsons Brinckerhoff (civil design)
O&M
Egis Projects