The approximately €500 million ($537 million) Ijmuiden Sea Lock is the first major project in the Dutch locks PPP programme to reach financial close. The deal has tested the competitive European infrastructure debt market’s appetite for high leverage and low pricing.

The Dutch highways and waterways agency Rijkswaterstaat began the programme with the much smaller pilot €34 million Limmel Lock project, which launched in July 2013. That project created anticipation for the €500 million Ijmuiden project, which followed into the market in April 2014.

Investor interest in the first two projects has been very high and the grantor will look to cash in further on the continuing dearth of infrastructure projects in the rest of Europe with rest of its Dutch Locks programme. Final bids came in last month for the Princess Beatrix Third Lock, and the roughly €100 million Eefde Sluice is expected to launch before the end of 2015. The Afsluitdijk project will follow in 2016, be on a scale from €500 million to €1 billion and is set to generate major competition.

Ijmuiden

The Ijmuiden project involves building a new sea lock at the entrance to the North Sea Canal, which offers access to the Port of Amsterdam. 

The initiative is to replace the hundred-year-old North lock, nearing the end of its usable life. The new lock will be able to accommodate the next generation of bulk carriers, container ships and cruise ships, reduce waiting times and operate independent of tidal levels. Its dimensions are going to be 500 meters long, 70 meters wide and 18 meters deep, whereas the old lock’s dimensions were 400 meters, 50 meters and 15 meters.

Bidding

Five consortia initially prequalified for the project but Ballast Nedam and Besix dropped out ahead of the first bid deadline in October 2014. Hochtief and Meridiam were trimmed from the next stage of dialogue.

On 21 August 2015, the OpenIJ consortium was named as the winner, beating two other remaining contenders - the CFE/TBI and Heijmans/John Laing/Jan de Nul consortia.

The OpenIJ consortium comprises BAM PPP PGGM Infrastructure Coöperatie (50%) and a VolkerWessels/DIF joint-venture (50%). Van Oord and Boskalis are subcontractors for dredging and dry earth work, whilst BAM and VolkerWessels will carry out all construction.

Bank finance

Projects in the Netherlands are typically given a strict 18 weeks from preferred bidder announcement to reach financial close. The sponsors were given a deadline in November for Ijmuiden, but completed the transaction ahead of time on 15 October.

The financing package came from the European Investment Bank and a group of commercial banks. High liquidity levels in Western European debt markets means banks have become increasingly aggressive on pricing. This aggression has meant that institutional investor debt, which has tended to be priced higher than bank lending, has not featured on a Dutch transport project since the N33 in 2012.

The lenders for Ijmuiden are:

• EIB
• KfW IPEX bank
• DZ Bank
• MUFG
• SMBC
• UniCredit

The EIB provided a long-term tranche of €165 million. The other lenders collectively provided a tranche of a similar size and tenor. The commercial tranche has pricing starting at 110bp over Euribor, falling to 105bp after construction and then rising gradually to 125bp over the life of the loan, IJGlobal understands. The commercial tranche has a six-month tail compared to the concession maturity date, whilst the EIB's has a 12-month tail.

The banks, excepting the EIB, provided a milestone bridge facility toward the €150 million grant that Rijkswaterstaat will pay at the end of construction. This facility priced in the double-digits, but only just, IJGlobal heard from a source.

Construction is due to commence at the start of 2016 and the lock should open to ships by the end of 2019.

The deal has a very high leverage, with the sponsors committing roughly €25 million of equity in total. Dutch commercial bank Rabobank has provided an equity bridge facility. Unusually, the sponsors' commitments to inject equity to repay Rabobank are backed with parent company guarantees rather than letters of credit, as is typical. 

Capital expenditure will be low during the operations phase, with most expenditure outlays coming during construction. The project can justify such a high leverage because over 90% of availability payments go towards servicing debt for this asset class. But the project's use of a debt service reserve facility, rather than an account, does reflects the high competition among lenders and liquidity in the market.

Maintenance period

The public grantor Rijkswaterstaat holds the responsibility for operating the lock, whilst the sponsor is responsible for maintenance in return for availability payments.

The maintenance period under the design, build, finance and maintain concession is 26 years. Van Oord and Boskalis as subcontractors will be responsible for maintaining the channels on the sea side and the North Sea Canal side.

The biggest penalties come from the unlikely event that the lock cannot fulfill its flood defence function, as a matter of national security. This is a factor which should be prevented by the protective design of both sides of the lock.

In the tender process both public and private participants have dealt with risk appropriation for matters such as ground risks (contamination, explosives, archaeology) and risks to existing infrastructure on a case by case basis in the contracts.

Public sector funding

On the public sector side, the various participants agreed their contributions in December 2014. The Ministry of Infrastructure and Environment contributed up to €601.7 million, the Province of North-Holland €57.76 million and the City of Amsterdam €105.25 million.

The Municipality of Velsen assisted in legal advice on planning. An EU grant contributed to the planning phase as the lock is eligible under the TEN-T transport network programme.

Advisers

RBC was financial adviser to the OpenIJ consortium and Houthoff Buruma legal adviser. Herbert Smith Freehills, Linklaters JLT and Mazars were all consultants for the lenders. PwC and Pels Rijcken & Drooglever Fortuijn advised Rijkswaterstaat.