The debate over how institutional investors can supplement bank financing on infrastructure projects is decades-long. Long-term investors, such as pension pensions and insurance companies, have the right time horizon to hold long-dated infrastructure debt, but sponsors struggle to absorb the cost of negative carry, meet investors’ construction risk concerns and tolerate the intrusions of the ratings process.

The shrinking pool of bank lenders able to fund long-term has moved this debate out of the realms of the hypothetical, making the attempt to foster an institutional debt market more a matter of necessity than best practice. Procuring authorities and multilaterals started developing new instruments or concession structures first, but banks are now taking the lead in developing new institutional debt products.

PEBBLE, or Pan European Bank to Bond Loan Equitisation, a new initiative spearheaded by ING, is probably the most well-developed example and is geared towards larger infrastructure projects, which struggle the most in raising long-term funding. Two out of the three shortlisted bidders for the A1/A6 road concession in the Netherlands submitted PEBBLE-compliant bids, however, only to lose out to the only consortium that relied on a classic bank financing.

SaaOne – a consortium comprising Boskalis, DIF Infrastructure III, Hochtief and VolkerWessels – financed the A1/A6 with Eu727 million ($945.4 million) in bank debt, the bulk of it at a maturity of nearly 30 years. The deal shows that, if only for the time being, there is still enough liquidity at lenders even for larger concessions.

The A1/A6 is the second and largest of five stages of the larger Schiphol, Amsterdam and Almere project and the first to be procured as a concession. It entails the widening of a section of the A1 between Muiderberg and Hollandse Brug, and a section of the A6 to Almere Havendreef under a 25-year-plus-construction design, build, finance and maintain concession.

Hochtief and the other contractors will also be responsible for the construction of new infrastructure at the intersection between Diemen and Almere Havendreef, including an aqueduct and railway bridge. The procuring authority, Rijkswaterstaat, will compensate the project company with regular availability payments, and restrict them if the project fails to meet certain performance-related indicators.

Rijkswaterstaat held an industry day on 13 May 2011, and shortly afterwards launched the tender for the project. five groups expressed an interest in the project. They were BAM/Strabag; Ballast Nedam/Heijmans, Besix/Vinci, Hochtief/VolkerWessels/Boskalis, and John Laing/FCC/Alpina/Strukton. Rijkswaterstaat cut the number of bidders to three in February 2012 and launched a competitive dialogue process. The three remaining consortiums were Ballast Nedam/Heijmans, Alpina/GlobalVia/ John Laing/Strukton, and Boskalis/DIF/ Hochtief/VolkerWessels.

The grantor assessed each of the bidders on price, risk allocation, risk management capabilities and ability to limit congestion on the sections. Hochtief and the other sponsors beat out the second place consortium, Ballast Nedam and Heijmans, by a margin of over 10%. The fact that it was the only consortium to submit an offer based on a traditional bank financing was said to be a deciding factor.

The winning consortium closed the deal on 26 February, financing the project through Eu727 million in non-recourse debt. The long-term financing is split between a Eu256 million term loan from the European Investment Bank and a Eu197 million commercial bank tranche, priced at 240bp over Euribor at the start of construction. Both facilities have maturities of 27 years and 6 months.

The commercial bank facility is split between a club of eight lenders – BTMU, Crédit Agricole, Helaba, KfW-IPEX, LBBW, Nord/LB, SMBC and UniCredit. The commercial banks are also providing a Eu73 million equity bridge facility and a Eu200 million milestone payment tranche, the latter of which will be repaid by the Dutch government at the start of operations. Both of these facilities have a maturity of 4.5 years.

The A1/A6 is the largest European greenfield infrastructure financing to close in 2013 and goes a long way towards proving that there are still enough commercial banks around to lend long-term. Basel III and its liquidity coverage provisions will test the continued viability of this classical solution, but for the time being there are enough bank lenders, whether because of access to the covered bond market or other cheap sources of long-term funding, to participate in long-dated financings.

Rijkswaterstaat has also been one of the more sophisticated procuring authorities in Europe in adapting concession structures to allow for institutional investor participation, as it demonstrated on N33, but still prefers a classic bank financing. The pressure to adopt new structures, not least from European lenders with strong project finance franchises but shakier funding capabilities, will continue. But PEBBLE will have to wait a while longer for its debut. 

SaaOne
STATUS
Closed 26 February 2013
SIZE
Eu727 million
DESCRIPTION
Financing for the upgrading of the A1 and A6 roads in the Netherlands under a 25-year-plus-construction design, build, finance and maintain concession
SPONSORS
Boskalis, DIF Infrastructure III, Hochtief and VolkerWessels
MANDATED LEAD ARRANGERS
BTMU, Crédit Agricole, Helaba, KfW-IPEX, LBBW, Nord/LB, SMBC, UniCredit
OTHER LENDER
European Investment Bank
SPONSORS’ fiNANCIAL ADVISER
Credit Agricole
SPONSORS’ LEGAL ADVISERS
Houthoff Buruma, White & Case
SPONSORS’ TAX ADVISER
Deloitte
SPONSORS’ MODEL AUDITOR
PKF
LENDERS’ LEGAL ADVISER
Linklaters
LENDERS; TECHNICAL ADVISER
Infrata
LENDERS’ INSURANCE ADVISER
JLT
EIB’S LEGAL ADVISER
Norton Rose
EPC CONTRACTORS
Boskalis (30%), Hochtief (35%), VolkerWessels (35%)