Paris Courthouse was one of the first sizeable PPP concessions to close in 2012, in the wake of an escalation in the Eurozone crisis since the middle of 2011, and went some way to demonstrating that there is still appetite among European lenders for reaching long tenors on large greenfield PPPs.

The 32-year availability-based design, build, finance and maintain concession involves building a court building in the heart of the Batignolles district to house both the Tribunal de Grande Instance of Paris and a police court. The new facility is a 160m tall tower designed by Renzo Piano, which will be the second largest building in Paris after the Eiffel tower. The project is designed to avoid the problems caused by inadequate space at the Palais de Justice, where the Tribunal de Grande Instance is currently located.

The French Ministry of Justice, through the Etablissement Public du Palais de Justice de Paris, tendered the project in June 2010, set a deadline for first- round bids of November 2010, and pulled in two bids: a Bouygues-led consortium, advised by Credit Agricole, and Vinci, advised by Natixis. With bidders required to provide letters of support from banks at the second bidding stage in June 2011, Bouygues approached the bank market in the first quarter of that year and received oversubscribed support from a group of five banks: BayernLB, BBVA, Credit Agricole, Societe Generale and SMBC. All five of the banks then provided fully underwritten offers for 100% of the debt financing at best and final offer stage in October.

In November the grantor settled on the Bouygues-led consortium as preferred bidder for the project and the sponsors then had a tight 10-week deadline to reach close. The project, which went from first bids to close in just over a year, is a good indication that the use of alternative forms of financing in public procurement need not be the cause of delays, though the pressure to close the deal before the presidential elections certainly contributed to the short timeframe.

The sponsors expanded the group of banks after the best and final offer stage to include BTMU, HSBC and Nord/LB. These lenders did not receive credit approvals in time for the final bid, but received them shortly afterwards. Credit Agricole dropped out of the bank group shortly after BAFO, though it remained financial adviser to the sponsors.

French banks’ struggles to raise long-term funding for project finance activities have receded a little in recent months, though the sponsors were lucky that foreign lenders, sensing an upcoming lull in big-ticket French PPPs, responded enthusiastically to the deal. France’s ability to maintain a strong PPP project pipeline – and offer a hefty suite of guarantees – had made it a favoured destination for PPP bankers from elsewhere in Europe. Even as other jurisdictions bulk up their pipelines, French PPP’s use of a guaranteed Dailly piece will always make it dear to lenders.

The Eu593 million ($790 million) in debt starts as a five-year construction loan of Eu593 million and is refinanced in operations with a Eu552 million 30-year Dailly-guaranteed loan and a Eu41 million 14-year uncovered commercial bank tranche. Rounding out the financing is a Eu66 million equity bridge loan and Eu15 million 5-year VAT revolver.

The pricing on the Dailly debt is 170bp, while the pricing on the uncovered commercial bank debt starts at 250bp rising to 300bp after year 10. The average debt service coverage ratio on the uncovered debt is set fairly aggressively, at 1.8x. The banks’ fees are 200bp. The margins on the debt, which were set at best and final offer stage, demonstrate the increasing costs that banks face in providing long-term debt for projects, even when the bulk of this debt benefits from the Dailly, a quasi-state guarantee.

That the sponsors were able to raise Eu671 million in debt from a group of seven banks at a tenor of 30 years is impressive. Notable absences from the lending group, however, are any French banks apart from SG, and non-commercial lenders such as the European Investment Bank and CDC, which typically participate in the larger Dailly tranches. Instead, Japanese banks, which have moved aggressively into many markets lacking long-term lenders, and German banks, which can book guaranteed pieces through covered bond programmes, predominate. BTMU and SMBC took the largest tickets, while Nord/LB held the smallest amount, since it was the only bank not to lend on the uncovered tranche.

Both tranches are fully amortising and there is no post-completion grace period on the loan, with repayments due to start at the beginning of commercial operations in 2017. There are no cash sweeps on the uncovered commercial tranche. The financing benefits from a debt service reserve account, equivalent to six months of debt service obligations. First drawdown on the debt took place in March, to fund the first stage of construction. Construction is due to be complete in 2016, with the aim of starting operations by mid-2017. 

Arelia
STATUS
Closed 15 February 2012 
SIZE
Eu671 million 
DESCRIPTION
Financing for the construction of a new courthouse for the Tribunal de Grande Instance of Paris, in the Batignolles district 
GRANTOR
Ministry of Justice 
SPONSORs
Bouygues, DIF Infrastructure II, SEIEF, Uberior
MLAS
BayernLB, BBVA, BTMU,
HSBC, NordLB, SMBC, Societe Generale 
GRANTOR’S FINANCIAL ADVISER
KPMG 
GRANTOR’S LEGAL ADVISER
Clifford Chance 
SPONSORS’ FINANCIAL ADVISER
Credit Agricole 
SPONSORS’ LEGAL ADVISER
Orrick-Rambaud-Martel
LENDERS’ LEGAL ADVISER
Salans 
TECHNICAL ADVISER
Mott MacDonald 
INSURANCE ADVISER
Marsh 
MODEL AUDITOR
Deloitte 
EPC CONTRACTOR
Bouygues Batiment International 
ARCHITECT
Renzo Piano