The UK’s pension infrastructure platform has struggled to get off the ground and the French government has only just started mapping out its Dailly securitisation programme, so the Dutch model serves as the lone European template.

This year’s winner in the availability category, the N33 road project, is not the largest deal to reach financial close in the transport sector, but the provision by Dutch pension fund APG of an inflation-protected tranche could well serve as a catalyst for other institutional investors interested in project debt.

The project entails the upgrading of a 38km stretch of the N33 road in the Netherlands under a 20-year plus construction design, build, finance and maintain concession. The sponsors will be responsible for the widening of the existing two-lane road into a dual carriageway, in addition to several other improvements such as new traffic interchanges and roundabouts that are designed to ease congestion in the area.

The N33 provides a link between the towns of Assen and Zuidbroek and is an important transport link in the north-east of the Netherlands. Once constructed, the road will ease traffic flows in the region by feeding in traffic to the existing A828 motorway and creating a new link to the A7 motorway. Construction is due to start in February this year and the project should be operational by the second quarter of 2015.

The deal prompted a lot of interest when Rijkswaterstaat, the Dutch procuring authority for transport and water projects, put it out to tender in May 2011. The grantor prequalified ten bidders: 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 that year the grantor cut the number of bidders to three – BAM PPP and PGGM; John Laing and Dura Vermeer; and VolkerWessels – and then started the competitive dialogue phase, which lasted until shortly before best and final offers went in at the end of October last year. It was during the competitive dialogue phase that talk about a possible institutional investor tranche began to take shape.

Even before it was put out to tender the Dutch government earmarked the deal as a pilot project could test the appetite of institutional investors for senior debt. The Dutch Ministry of Finance held talks with several pension funds about participating, including APG, and worked with these investors to develop a suitable product.

By the time the project went out to tender, APG was the only remaining pension fund that was willing to invest in the project. The grantor offered shortlisted bidders the option of submitting bids that included a stapled financing for up to 70% of the senior debt, but there were still intercreditor issues that grantor, potential sponsors, and potential lenders had to work out during the competitive dialogue phase. These included waiver rights and controlling creditor status and had to be solved before APG was fully on board.

All three bidders opted to use the alternative funding scheme because it offered advantages in tenor and pricing, and submitted best and final offers on 31 October. The grantor awarded the project to BAM PPP and PGGM shortly afterwards and the deal signed on 21 November last year as Eu125 million in non-recourse debt.

Three banks – BTMU, KfW-IPEX and Rabobank – are providing the debt during the construction phase, which is split between a Eu77.5 million construction bridge loan, a Eu35 million project facility and a Eu12.5 million equity bridge loan. The three banks are lending on a pro rata basis across each of the tranches. The construction bridge loan is then refinanced during the operational phase with an inflation-indexed tranche from APG.

Both bridge loans have bullet repayments, while the repayments on the long-term facilities match the availability payments and so are quarterly. 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 Dutch Ministry of Finance is responsible for making payments directly to APG to compensate for changes in inflation. The inclusion of inflation protection was important to APG since pension funds’ long-term liabilities are typically inflation-linked. The inflation indexation acts as a sort of proxy for adverse base rate movements, which also helped win over APG.

Institutional investors have showed increasing interest in infrastructure, at a time when yields on good sovereign debt has reached historic lows, but their opportunities have mostly been limited to equity investments, usually managed by third-party managers. The N33 offers a template for bringing institutional investors in on the senior debt side and the challenge will be to see if it can be repeated. 

Poort van Noord

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

GRANTOR

Rijkswaterstaat

SPONSORS

BAM PPP + PGGM

MANDATED LEAD ARRANGERS

BTMU (legal documentation bank, insurance bank), KfW-IPEX (technical bank, modelling bank) and Rabobank (hedge coordinator, facility agent, intercreditor agent, security agent, account bank)

INSTITUTIONAL TRANCHE PROVIDER

APG

GRANTOR’S FINANCIAL ADVISER

PwC

GRANTOR’S 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/O&M CONTRACTORS

Subsidiaries of Koninklijke BAM Groep