The poor state of the Italian economy has diminished the appetite of domestic lenders to make long-dated infrastructure loans. Until recently has been the norm for cash-rich sponsors have resorted to balance sheet funding, while smaller developers have had to go back to grantors for alterations to existing concession agreements to close limited recourse debt.

But the sponsors of the BreBeMi motorway toll concession managed, against this backdrop, to raise roughly Eu1.5 billion ($1.9 billion) in long-term debt. The deal demonstrates that sponsors still have long-term funding options, though they need multilaterals and government agencies to bridge part of the funding gap vacated by banks.

The project entails the construction of a new 62km tolled motorway connecting the Italian cities of Brescia, Bergamo and Milan under a 20-year concession. The motorway will link up with the TEM ring road, which an Impregilo-led consortium is developing. The Milan ring road has not yet been completed, although BreBeMi’s project documentation is flexible enough to protect lenders if it is not completed on schedule.

Its main sponsors, Autostrade (78.9%) and BIIS (11.1%), won the project back in 2002 and in the absence of a project financing funded construction through a mixture of equity and bridge loans. In February last year, the sponsors agreed to increase an existing bridge loan, provided by Banca IMI, Centrobanca, MPS Capital and UniCredit, to Eu546 million and have extended its maturity twice.

The sponsors had signed commitment letters for the long-term financing in July 2011 with five banks – Banca IMI, Centrobanca, Credit Bergemasco, MPS Capital and Unicredit – but the margins in this letter became too aggressive for banks to fund, following further deterioration in the Italian lending market.

The banks pushed to increase margins, although the sponsors baulked, noting that any substantial increase in pricing would probably lead to a deterioration in the deal’s debt service coverage ratio to near-distressed levels. Faced with this stalemate, the European Investment Bank and Italian export credit agency SACE agreed to participate in the financing in order to ease upward pressure on margins.

The deal signed in late March, through Eu1.52 billion in long-term debt, exactly half of which comprises fully amortising facilities. The amortising debt has a tenor of 20 years and includes a Eu398 million tranche from commercial banks, with the EIB providing a type of pass-through funding – and SACE in turn providing a guarantee on that funding – to lower in turn lenders’ cost of funding.

The commercial banks are also providing a Eu251 million facility with a similar pass-through structure, this time with Italian state-owned institution Cassa Depositi e Prestiti (CDP) as lender. The 20-year debt is then rounded off with Eu40 million in direct funding from commercial banks (without any pass-through mechanism) and a Eu251 million direct facility from CDP. The other half of the long-term debt comprises bullet facilities.

The deal does not fall under the Italian asset-based concession model, and the amortisation profile of the debt goes beyond its tenor, meaning that lenders have to defer a portion of the debt service. But they take comfort from the residual value of the project at the end of the concession, whether as a government payment or transfer fee.

The bullet debt has a maturity of 21 years and comprises a Eu509 million direct loan from CDP, a Eu196 million commercial bank loan which includes pass-through lending from the EIB and the SACE guarantee, a Eu35 million direct loan from the EIB and guaranteed by SACE, and a Eu20 million direct facility from commercial banks (without any pass-through funding).

The senior debt is then rounded off with a Eu50 million standby facility from the commercial banks, which has the same maturity as the long-term debt if drawn and includes a guarantee from SACE for up to Eu7 million, a Eu200 million VAT facility, guaranteed by SACE up to Eu28 million, and a Eu48.5 million performance bond facility, guaranteed by SACE for up to Eu7 million.

The sponsors are meeting the rest of the total financing requirement with Eu520 million in cash equity and Eu17 million in contingent equity, which will be used if the standby facility is drawn to keep the project gearing roughly constant. There is also a Eu70 million equity reserve account, which can be drawn if the financing breaches some coverage ratios, and operates similarly to the debt service reserve account, which is equivalent to six months of debt service obligations.

The sponsors are waiting until the project meets final conditions precedent to draw on the debt, a process that they expect will be complete this quarter.

The deal is unlikely to be a model for other toll road concessions, given that the support provided by SACE for a domestic project financing is unprecedented and there are limits to the EIB’s financial capabilities, as well as strict conditions attached to the type of projects in which it can participate. Societa di Progetto Brebemi S.p.A.
STATUS
Signed 25 March 2013
SIZE
Eu2.355 billion
DESCRIPTION
62km tolled motorway between the Italian cities of Brescia, Bergamo and Milan
GRANTOR
CAL S.p.A.
LEAD SPONSORS
Autostrade (78.9%), BIIS (11.1%)
MANDATED LEAD ARRANGERS
Banca IMI, Centrobanca, Credit Bergemasco, MPS Capital, UniCredit (documentation agent, facility agent)
OTHER LENDERS
CDP, EIB
ECA
SACE
SPONSORS’ LEGAL ADVISER
Norton Rose
MLAS’ LEGAL ADVISER
Ashurst
CDP’S LEGAL ADVISER
Legance Studio Legale
EIB’S LEGAL ADVISER
Chiomenti Studio Legale
SACE’S LEGAL ADVISER
Legance Studio Legale
ENGINEERING, PROCUREMENT & CONSTRUCTION CONTRACTOR
Consorzio Cooperative Costruzioni, Impresa Pizzarotti