The L2 Marseille availability road PPP was the largest infrastructure financing in France in 2013 and the first Dailly-guaranteed bond financing for a greenfield project. A Bouygues-led consortium closed the financing in October, and its success in securitizing a Dailly obligation will inspire similar French PPP financings. Allianz Global Investors, as sole lender, bought €163 million ($221 million) of unwrapped bonds bearing construction risk and some operational risk.

The French ministry of transport issued the tender in October 2012, and Société de la Rocade L2 de Marseille won the 30-year design, build, finance, upgrade and maintain concession to build 10.9km of motorway passing through an urban area. The engineering procurement and construction contractors are Bouygues Construction, Colas and Spie Batignolles.

The north section connects to the A7 motorway and the east section connects with the A50. Marseille is one of France’s most congested cities and the L2 is a vital project to ease traffic, which had been planned for decades.

The grantor required a full financing package, including a commitment on pricing, at the tender stage. The sponsors decided not to use the financing that the European Investment Bank approved in September 2011, and also rejected a conventional bank financing. The Allianz product was simpler, offered a longer tenor and was competitive on fees and pricing.

“It was challenging to implement such a new solution and to get everyone comfortable, as the unwrapped bond was a new financing scheme. It was one of the first projects for Allianz and it was important to be as clear and transparent as possible, so that the government could be sure that by choosing us it would definitely be delivered...,” says Philippe Charton, head of project finance at Bouygues Construction. “It was not the easiest solution, but it was the best solution.”

The total project cost is about €590 million, met with €163 million of long term senior debt, €397 million of subsidies from the state and region, €3 million of pure equity and €27 million of shareholder loans, to the last of which Crédit Agricole and Société Generale provided bridge loans.

The senior debt is split into two roughly equal private placements. Securitisation vehicle FCT Rocade L2 de Marseille issued about Eu85 million of bonds to Allianz with a maturity of 30 years. This tranche requires that Crédit Agricole act as fronting bank (lender of record) to be eligible to receive Dailly receivables. The issuer lends the proceeds of the FCT bonds on to Crédit Agricole, which provides a 30-year loan to the project company. As debt service payments will match the guaranteed receivables for the FCT bonds, the average projected debt service coverage ratio is 1x.

Separately, project company Société de la Rocade L2 de Marseille issued roughly Eu78 million of 28-year project bonds directly to Allianz. The projected average debt service coverage ratio on the project bonds is high, for an availability PPP, at 1.83x.

Moody’s rated both tranches Baa3, due to the L2's availability-based payment mechanism, the strength of the Bouygues-led construction group, a 40% liability cap for the construction contractors and a bank letter of credit equal to 10% of EPC price.

After construction ends in 2017, the pricing on the FCT bonds and the project risk bonds will diverge. For PPP projects in France bank debt pricing has been in the region of 150-200bp for Dailly-covered debt, whilst debt bearing operational risk prices 30-50bp higher. The pricing achieved on the L2 bonds is said to be competitive with these levels.