The N17/N18 Gort-Tuam financing marks the re-emergence of international confidence in Ireland, after the impact of the sovereign debt crisis. The major greenfield road project, costing roughly €334 million ($462 million), is the second transport PPP to sign in the country since the crisis, and the third overall.

Vitally this project has tapped bank and institutional sources of long-term debt and equity financing from across Europe. The N17/N18 has closed with little domestic support, an impressive progression from the last couple of PPPs.

The outlook for the next couple of years is optimistic for the abundant Irish pipeline – which includes two further transport and six social infrastructure PPPs. After this project Natixis and Societe Generale are set to continue their involvement in upcoming projects, and both told IJGlobal that they are receiving great interest from new international lenders looking to enter deals.

Pipeline on hold

After the recession forced Ireland to freeze its PPP programme, only a few projects have crossed the finish line. The National Development Finance Agency (NDFA) launched a €2.25 billion infrastructure stimulus package in July 2012 with transport, education, justice and health projects on the agenda.

The programme involves raising €1.4 billion of investment, with €850 million specifically needed for transport. The market had lain dormant since June 2010, until the €120 million Third Schools Bundle PPP closed in November 2012, followed by the €282 million N11/N7 motorway in April 2013.

The sponsors of N17/N18 will design, build, finance and maintain a 57km four-lane motorway to replace the existing single carriageway roads. The motorway will bypass Clarinbridge, Claregalway and Tuam in the west of the country, which all struggle with congestion.

After the tender in 2009, originally a BAM/Balfour Beatty consortium won the N17/N18 concession in September 2010, backed by Dexia, National Australia Bank and Bank of Ireland. However as foreign lenders retreated amidst the sovereign debt crisis, the consortium failed to hold on to its financing.

The National Roads Authority (NRA) re-awarded the N17/N18 project to the second-placed Direct Route consortium at the end of 2011. The Irish government’s NRA will make availability payments over the 25-year operational period, worth a total of €550 million. The motorway is due to enter operations by the end of 2017.

Financing returns

Societe Generale is financial adviser to Direct Route and one of the two foreign commercial banks that decided to get a strong footing in the country’s emerging pipeline. Natixis was also an early participant, coming aboard in early 2013 with a requirement to take a significant tranche.

Natixis brought its investment partnership with Belgian-Dutch insurer Ageas to the table. Under their partnership agreement, signed in October 2012, Ageas invests in Natixis-sourced infrastructure debt, with Natixis retaining significant exposure to the deals.

In addition Societe Generale brought Aviva as an investor in its own tranche. ING’s insurance arm requested to come in as a late entrant, though the Dutch insurer was unable to join Natixis’ tranche until after financial close.

As was previously the case for the N11/N7, the Bank of Ireland and the EIB had to be reconciled as co-lenders. The EIB is normally able to lend only alongside entities rated at least A-, whereas Bank of Ireland’s senior debt is rated Ba3 (Moody’s). The glitch was smoothed by a reduced Bank of Ireland tranche with a fixed interest rate.

Furthermore the Department of Transport, Tourism and Sport (DTTS) and the Minister of Finance provided a letter of indemnity to back the NRA’s availability payments as was the case for the N11/N7.

With liquidity no longer an issue for the Irish market, the National Pensions Reserve Fund was not required, as it had been on both the Third Schools PPP and the N11/N7. In those deals it provided a contingent credit support tranche to cover the full size of the Bank of Ireland debt.

The break-down

The €294 million senior debt achieved a 26.5 year amortising tenor. The debt signed and closed on 30 April 2014 and the participations are approximately:

• EIB - €144 million
• Natixis - €100 million (of which Ageas has a large participation and ING’s insurance group will take a small participation)
• Societe Generale - €25 million (of which Aviva took roughly €10 million)
• Bank of Ireland - €25 million

Taking an average across all of the tranches, the pricing is between 350bp and 400bp, tighter pricing than the N11/N7 which was well over 400bp for the Bank of Ireland debt. There is also a small change-in-law facility.

Aside from institutional debt, the project’s €40 million of equity also largely came from European infrastructure investment funds. The Marguerite Fund provided 50%, whilst HICL Infrastructure (managed by InfraRed Capital Partners) subscribed to 10%, with a conditional commitment to take an additional 32% stake in early 2019.  Four construction firms each hold 10% - from Austria STRABAG, and from Ireland Lagan Projects Investments, Roadbridge and John Sisk & Sons. The three commercial banks provided a bridge loan for the equity.

Promising pipeline

The influx of foreign institutional debt for Irish PPPs is due to propagate, with several projects already in shortlist stage. The major road project the N25 New Ross Bypass is already approved to utilise the EIB’s project bond credit enhancement initiative, and Societe Generale and Natixis are once again amongst the advisers for the four shortlisted bidders. The Fourth Schools Bundle is slated to close in the last quarter of 2014.

Advisers

Societe Generale was financial adviser to the sponsor, and A&L Goodbody was legal adviser.

The NDFA acted as financial adviser to the NRA, with additional support from KPMG. McCann Fitzgerald was legal adviser.

For the lenders, Pinsent Masons (legal), Marsh (insurance) and WS Atkins (technical) advised.