Germany's A5 highway PPP in Baden-Württemberg has reached financial close, making it the last of the pilot projects in the A-Model programme. This transaction stands as a landmark deal amid the financing quagmire in which many PPPs dwell.

The fact that four banks managed to commit to €200 million of funding with the European Investment Bank (EIB) matching that is impressive in light of the limited availability of long-term commercial lending.

Background

The A-Model is a German contractual framework for financing renovation and widening of existing motorways and construction of new sections on the private-sector concession model - as opposed to the F Model which is purely new-build. Apart from the A4, all the other A-Model projects so far have only entailed widening of the existing motorway, and the new projects will also be just widening projects rather than any brand new sections being constructed.

Under the A-Model, private partners recoup investments through tolls on heavy goods vehicles which they receive during the operation period and a start-up financing contribution from the government.

The A5 DBFO scheme [Projects Database]  is the last of the four pilot projects launched back in 2005 through the Federal Ministry of Transport, Building and Urban Affairs' A-model highway PPP programme.

The tender notice was published on OJEU on 7 December 2005 and the deadline for pre-qualification was 12 February 2006. Tender documents were provided in February 2007 and bid submission was in September 2007.

The phase two BAFOs saw submissions by two shortlisted consortia - a Vinci-led team and a Bilfinger Berger-John Laing-Bunte consortium. Invitation to BAFO was issued in March 2008 and the BAFO submission deadline was December 2008. The notification to Vinci of preferred bidder status was issued in January 2009.

The successful Via Solutions Südwest SPV includes:

• Vinci Concessions - 50 per cent
• Meridiam Infrastructure - 37.5 per cent
• Kirchhoff (subsidiary company of Strabag) - 12.5 per cent

This is the second German transport project to be won by Vinci, the first being the A4 motorway between the towns of Gotha and Eisenach in Thuringia.

Bilfinger Berger challenged the contract award, but ultimately withdrew its objection to Vinci winning. Often when such challenges are made, the losing bidder aims to overturn the decision or recoup bidding costs.

The project then moved forward from contract award to financial close  on 30 March in less than two months - just in time for the end of March deadline. This quick turnaround to FC is impressive when so many other PPPs have been stalled for months since the financial crisis set in.

The project

The 30-year concession is to DBFOM the upgrade of a 60.3km stretch of the A5 Autobahn from Malsch to Offenburg in Baden-Wuerttemberg, including the widening of both carriageways along a 41.5km section of this route from two to three lanes. This is a highly trafficked route and an impressive technical solution was required.

Construction work will take five years to complete and is entrusted to a 50-50 joint venture of Eurovia (a Vinci subsidiary) and Kirchhoff. The construction phase of the scheme presents a number of technical challenges relating to the planning of a major programme of construction works whilst providing continued capacity to keep the route open for high volumes of traffic throughout this period.

Construction is not actually required to be completed until the 15 January 2015, although the Consortium are entitled to accelerate construction as they see fit.

Clifford Chance provided advice to the lenders, Scott Wilson was technical adviser, AON provided insurance advice, while Simmons & Simmons acted as legal adviser to EIB. Freshfields was the sponsors' legal counsel and Deutsche Bank provided financial advice, technical (O&M) adviser was Durth Roos Consulting and the technical (construction) advisers were GST Dresden and Villaret Ingenieurgesellschaft.

Norton Rose and CMS Hasche Sigle acted as legal advisers to the authority, Schüssler Plan was technical adviser, while Investitionsbank Schleswig-Holstein and Alfen Consult provided financial advice.

The lenders' technical adviser, Scott Wilson, focused on technical and contractual aspects of the consortium's proposals. The firm undertook independent assessments of the relevant aspects, providing independent opinion and advice on behalf of the project lenders. 

The areas of focus included proposed technical solutions such as:

• design, in particular pavement and structures for a highly-trafficked route
• construction processes, managing the widening of a motorway under live traffic conditions
• heavy maintenance planning - asset lifecycle maintenance over the full 30-year concession period
• operations and maintenance - managing day-to-day traffic, repairs and monitoring to keep the route operational
• resourcing and costs 

 It also provided focus on project contracts:

• concession contract - requirements for the SPC, performance regimes, liability levels, risk allocation
• EPC contract - delivery & completion requirements, performance & payment structures 

And support through to financial close:

• technical and commercial aspects of the project documentation, including contractual conditions
• supporting documentation relating to facilitate finalisation of financing arrangements and financial close.

Financing

The following commercial banks provided €200 million in senior debt with a maturity of 28.5 years:

• BBVA
• KBC
• NIBC
• Santander

The senior debt pricing goes up to Euribor+325bp and the debt to equity ratio is 80:20. The full length of the 28.5-year tenor will only be reached if an extension option is exercised half way through the term.

The EIB put forward €200 million and also provided an LGTT (Loan Guarantee Instrument for Trans-European Transport) of €25 million.

This new financial product, developed by the EIB, is expected to facilitate greater participation of the private sector in the financing of transport infrastructure of European significance, especially for investments in TENs (Trans-European Transport Network) projects where there is a high level of revenue risk in the early operational period of a project.

This new instrument will partially cover this risk and thereby significantly improve the financial viability of TENs investments.

The remuneration of the deal will be calculated according to the traffic of HGVs (more than 12 tons) - collected by a satellite tolling system. The tolling system is run by Toll Collect - of which Cofiroute is a shareholder alongside Daimler and Deutsche Telekom. The German government awarded Toll Collect a contract in 2005 to provide tolling systems across the country.

Via Solutions Südwest SPV will provide €110 million in equity, with Vinci Concessions putting forward the lion's share of up to 50 per cent.

The project reached financial close on 30 March 2009 and the concession starts today (1 April).

Conclusion

The main challenge that the A5 project faced was the current market conditions and getting the deal over the line.

The fact that the procurement process met the strict and ambitious deadlines in a challenging market is testament to the success of - and confidence in - the A-Model series and PPPs in Germany. To back up this point, a further wave of A-Model roads will make it to market soon.

The German government recently gave the greenlight for eight new A-Model PPP projects, with the tender process for two of these new projects expected to start by the end of the 2009 (A8 Ulm-Augsburg (Bayern)) and A9 Hermsdorf-Schleiz (Thüringen).

The project at a glance