Greater Vancouver's Can$1.04bn Golden Ears Bridge DBFO has turned out to be the single most remarkable P3 scheme to have closed in Canada. It serves as a beacon on a provincial and national level as well as standing alone as a groundbreaker in the North American project finance market

It is not surprising that Canada's provincial P3 market is looking up to BC as an example - it's leading the sector by a country mile.

Last year was a bumper year for Partnerships BC, which closed a raft of projects with a value of Can$2.7bn (US$2.4bn) including: 

• the US$498m Sea to Sky Highway
• Richmond Vancouver's US$1.8bn Rapid transit line
• US$116m Okanagan Lake Bridge PPP
• the second US$110.5m phase of the Kicking Horse Canyon scheme

With the recent launch of RFQs for the Can$3bn Gateway Programme and a host of PPPs coming on line soon, the steady stream of projects shows no sign of slowing down.

What sets Golden Ears apart is its cutting edge financing structure which, according to a source close to the deal, is one of the most complex project financing the market has ever seen.

The project boasts the largest senior debt facility for a greenfield scheme in Canada (Can$963 million) but for the first time to date, the North American market has seen a commercial bank financed scheme wrapped by two monolines - a unique combination that will provide the project company with liquidity during construction, favourable pricing and the long term security of a AAA+ credit rating.

And if that's not enough, Golden Ears benefitted from Canada's first long-term interest rate swap, a facility rarely seen in project financed schemes across the pond.

The scheme is all the more impressive given that it took just 88 days to reach financial close.

Rationale

The Golden Ears Bridge project is far more than a vital link between communities on the south and north side of the Fraser river in the Greater Vancouver region.

Like a number of British Columbia's P3 ventures - Kicking Horse Canyon, Sea to Sky, Orkanagan Lake Bridge - the scheme forms part of a wider federal drive towards improving the flow of traffic on the north/south road corridor that runs to the US border, which witnesses the biggest cross-border trade in the world.

The new 14km toll bridge will facilitate the flow of cars and goods vehicles on Portaman Bridge - the main entry onto Vancouver Island - which suffers from constant bottlenecks. The new bridge and associated road network will result in improved north-south access to regional centres and major trade routes such as the Trans Canada Highway.

The project is expected to be operational in time for the opening of the 2010 Winter Olympics in Whistler - an event that is expected to see traffic figures soar across the region.

Project

TransLink, the Greater Vancouver Transportation Authority, awarded the Golden Crossing Group (GCG) the DBFO contract for the new six-lane toll bridge and associated road network on 7 December 2005.

The consortium - which beat two shortlisted groups headed up by Macquarie and Vinci to the 35-year contract - is led and entirely sponsored by Bilfinger Berger BOT, a wholly-owned Canadian subsidiary of Bilfinger Berger and includes CH2M Hill, Buckland & Taylor, Capilano Highways Services (operator) Amec Americas and a long list of sub-contractors.

The project adheres to a wider trend in Canada for sponsors and their subsidiaries to lead their own team for the construction and operation phase of deals.  SNC Lavalin and its subsids have taken the lion's share of BC's project finance deals but it was Bilfinger Berger BOT and its civil engineering branch that came up trumps this time.

Under the framework of the contract, GCP will deliver a six-lane, 1km toll bridge over the Fraser River, including new arterial roads totalling 13km that will connect the bridge to the existing road network on both sides of the river.

It will also be responsible for municipal road upgrades to improve traffic flows and facilitate the integration of the new crossing into the existing road network.

Scheduled to open in June 2009, the Golden Ears Bridge and associated road network will reduce travel time across the river by 20-30 minutes and will benefit the entire region by opening up access to employment, markets, services, facilities and recreation.

The contracted construction costs for the bridge and associated road network are Can$808m, reflecting additional infrastructure, labour and materials costs. Costs will be recovered through toll revenue and the current Albion Ferry subsidy - a service that takes one hour to cross the river. The toll rate has been set and will be collected by TransLink.

Golden Crossing Group will assume responsibility for cost over-runs, on-time delivery and operating performance. The bridge and associated road network will be turned over to TransLink at the end of the term. A contract to provide and operate the electronic toll collection will be awarded through a separate procurement and selection process.

GCG has developed a design for the bridge that reflects the unique characteristics of the communities in the project area. The bridge concept is a low-profile adaptation of the Alex Fraser cable-stayed bridge incorporating a simpler cabling system that eases construction and maintenance.

Construction of the bridge and new road network is expected to create more than one billion dollars in economic activity and 6,500 person years of employment.

Financing

This bridge project - the largest senior debt financing for a greenfield project in Canada - closed on 3 March 2006, an impressive four months after GCG was awarded preferred bidder for the project.

Dexia Credit Local and Depfa acted as the project's mandated lead arrangers, providing a senior debt facilty of Can$963.5m - including a Can$25m standby facility and Can$10m working capital facility - which was secured by monoline assurers Ambac and XL CA (AAA+) in the first bank debt financing PPP to be wrapped in the North American market.

Canada has been producing a steady flow of large-scale, UK-style PPP schemes that one industry official described as 'tailor-made' for monoline backing.

The participation of monolines in the deal not only provides the project company with favourable debt pricing but the unique combination with the lender gives the consortium flexibility, according to Anne Rabin, managing director and head of international project finance of Ambac.

'The borrower has the best of both worlds - benfitting from the lenders' liquidity during construction and the security of a long term AAA+ credit rating throughout the contract's life span,' says Rabin.

Rabin said Ambac had been very interested in entering Canada's evolving provincial P3 market for some time but had been trying to work through a number of regulatory constraints to which monolines operating in the country would be subject. Provincial regualtions in British Columbia provided an opening for monoline participation, although all the debt facilities were still wrapped offshore and abroad: in the UK, Ireland and New York.

The two credit assurers wrapped the Can$963.5m senior debt facility that was provided 50:50 by the two MLAs. The 34.5 year facility is initially priced around 70bp over CDOR before rising to around 80bp for the final years. Depfa is also providing a US$27m mezzanine loan to the project.

Bilfinger Berger is acting as the scheme's only sponsor providing Can$52m equity - which will initially be funded through an equity bridge loan supplied by the two lenders, giving the financing a debt/equity ratio of 92:8.

Under the framework of the availability based payment structure, TransLink will set and collect all tolls, thereby protecing the project against any traffic risk.

The deal also stands out for the inclusion of a standard consumer price index-linked swap from Depfa - on a back-to-back with RBC - with a long term interest rate swap, provided 50:50 by the leads which up until now has never been adopted in the North America market.

The facility will give the project company added protection against any major inflation fluctuation by swapping inflation-linked revenue streams into an inflation-linked repayment obligation.

Despite recent media reports indicating that the senior debt facility will not be subject to syndication, it has been confirmed that a syndication strategy is being finalised although the two MLAs are likely to retain a significant portion of the senior debt. 

Closure of the scheme's financing in just 88 days is particularly noteworthy given the scale and sophisticated financing package, but highlights the strict tender timelines imposed by Canada's provincial authorities.

Stephane Carriere, Dexia's vice president of project finance adds: 'Closing the deal quickly was made possible by strong involvement by all parties around the table who had to overcome numerous issues which arose while implementing this new and complex structure.

He adds: 'No doubt we will greatly benefit from all the work which has been done for future transactions.'

Legal

As is seen throughout Canada's P3 market, the public entity - TransLink - was keen to get heavily involved with the private sector during the bidding process but once the preferred bidder was announced in December, it took very little part in any further commercial discussion with GCG. 

A practiced technique in Canada that attempts to cut off any further negotiations with the consortium to reduce the possibility of any 'project creep'.

This strict public sector measure helped to bring a speedy conclusion to the scheme's financing package but Ian Bendell - orignially on secondment from CMS Cameron Mckenna to Davis & Co and now partner at Davis & Co - advised the sponsor that a slight relaxation of the strict North American regulation would be a definite advantage.  'There is a danger that the aggressive timeframes will put too much pressure on the narrow market of advisers in Canada,' he adds.

The extra time would ensure that the public and private sectors do not run the risk of missing any of the finer details of the scheme. 

The scheme was initially complied within three seperate legal documents making it difficult to sell to the project company and lenders. Measures were then taken to consolidate the structure of the documents into a more palatable, user-friendly single project document, more commonly used in UK. 

A weighty list of legal advisers included Norton Rose and Linklaters who acted for the lenders and monolines respectively while domestic firm Farris consulted Translink and another Canadian outfit - Maccarthy Tetrault acted for the province. Borden Ladner provided legal advice for the construction JV.

Conclusion

It is hard to nail down just one reason for British Columbia's latest P3 scheme to be held up as a cut above the rest. The deal has it all - recordbreaking amounts of senior debt for a greenfield project, Canada's first monoline wrapped commercial bank debt, the first North American long-term interest rate SWAP and a deal which was signed and sealed in record-breaking time. 

The complexity of the groundbreaking financial structure of the deal was offset by a simple availability payment mechanism with zero traffice risk - TransLink, the region’s transport authority has taken that onboard.

Whether or not the scheme will set a wider trend for wrapped bank-financed projects in North America (the Candian regulatory regime would have to ease up constraints first) or further afield remains to be seen but the deal certainly proves that Canada's well established provincial P3 market is evolving fast.

The project at a glance