On 1 August 2013 an Acciona-led consortium reached financial close on the €321 million ($446 million) Novo Hospital de Vigo in Spain. The deal had to contend with the bankruptcy of one of its original sponsors but was the largest social infrastructure PPP to close in Spain in 2013.

Novo Vigo’s 30-year design-build-finance-operate-maintain contract covers a new 1,400-bed hospital in Spain’s autonomous community of Galicia that will cover an area of 250,000 square meters. The project will also include the redevelopment of two existing facilities in the port town.

The Autonomous Community of Vigo and the Spanish health agency, Sergas, issued a request for proposals for the project in the second quarter of 2010. In early September 2010, they shortlisted two groups for the project: an Acciona-led consortium and a Copasa-OHL-San Jose-Iridium consortium.

In December that year Sergas decided that the Copasa consortium’s proposal did not meet the tender’s technical requirements, leaving the Acciona group as the only consortium in the running. Sergas spent the intervening time evaluating Acciona’s financial and technical proposals before awarding it the concession in February 2011. The consortium members are Acciona (43.3%), Puentes y Calzadas Grupo de Empresas (23.3%), Dalkia (16.7%) and Concessia Cartera y Gestión de Infraestructuras (16.7%).

Construction began on the project in June 2011, with the sponsors providing initial equity funding of €68.2 million. “Despite strong support from the local and regional government and a direct loan from the European Investment Bank, the financing took around two years to close,” says Pablo Amable González Taberna, head of project finance infrastructure (Spain) at BBVA, “the EIB agreed a direct loan for the project in 2011, and we required a firm commitment from local banks to overcome the lack of foreign investment.”

Short-term mini-perm financings have been the norm in Spain over recent years, and the deal is notable for local banks’ willingness to offer long-tenor financing. “We debated reducing the tenor on the debt but this would have meant we lost EIB funding, as it is often wary about refinancing risk,” says BBVA’s Taberna. “In the end we felt that it was better to persist with trying to finance the deal using local banks.”

One of the original sponsors, OCA, which owned a 10% stake in project, entered insolvency proceedings in May 2013, jeopardising the pace of construction. So the remaining sponsors bought OCA’s piece of the project. Despite that hurdle, the financing closed on 1 August 2013, with operations scheduled for August 2015.

The EIB provided a 19-year €110 million direct loan to the project, a loan it had approved in November 2011. A further €110 million in soft mini-perm debt came from a club of five local banks – BBVA, Santander, CaixaBank, Banco Popular and Novagalicia Banco. BBVA and Santander both took €30 million tickets, with CaixaBank and Banco Popular taking €20 million tickets and Novagalicia Banco taking €10 million.

The financing was rounded off with a 19-year €30 million mezzanine loan from AXIS, the investment arm of ICO, and a 2.25-year €2.8 million revolver from BBVA and Santander. The debt/equity ratio on the project stands at 68.5/31.5 with average debt service coverage ratio of 1.44x and a minimum loan life debt service coverage ratio of 1.59x. The loans have a grace period of 10 months, and drawdown took place on 14 August 2013.

Cash sweeps are in place but cover a predefined portion of total outstanding debt on top scheduled principal repayment, rather than a percentage of available cash. The project would not default if it is unable to make these additional repayments, meaning the shortfall would roll over and be added to the following year’s target.