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CASE STUDY: LITORAL CENTRO (Real Toll motorway) Variable Term DBFO concession (min 22 yrs - max 30 yrs) Pedro Eiras Antunes EIB – European Investment Bank

IADB, 8-9 December 2005 1


Litoral Centro Motorway – Where?

2


Litoral Centro Project • Design, construction and financing of 104.5 km de motorway and associated infrastructure in Portugal’s West Cost, along the IC1 road between Marinha Grande and Mira, of which 92 km to be operated and maintained with a real toll concession for a max of 30 yrs. • The remainder 12.5 km concern the connection between the A1 Lisboa-Porto motorway, at IC8-Louriçal (IC1) and Pombal (A1-IP1), to be transferred to the state after construction.

B&O

B&T

A17– Marinha Grande / Louriçal

31.2 Km

-

Louriçal / A14

24.0 km

-

A 14 / Quiaios

7.7 km

-

Quiaios / Mira

29.1 km

-

 

12.5 Km

92.0 km (88%)

12.5 km (12%)

IC8 -Louriçal (A17/IC1): Nó de Pombal (A1/IP1)

Total

3


Litoral Centro Concessionaire BRISAL BRISAL’s shareholding structure BRISA-Autoestradas de Portugal, SA

Country PT

BCP Investimento, SA SMLN-Conc. Rodov. de Portugal, S.A.

PT PT

BRISA-Serviços Viários, SGPS, S.A. BRISA-Engenharia e Gestão, S.A. BRISA-Assistência Rodoviária, S.A.

PT PT PT

Lena Engenharia e Construções, S.A. Somague –Engenharia, S.A. MSF-Moniz da Maia Serra & Fortunato Novopoca-Construtores Associados, S.A. TOTAL

PT PT PT PT

Activity Motorway Operator Banking Construction Holding Engineering Motorway Assistance Construction Construction Construction Construction

Partic.% 79.99% 10% 9.99% One Share One Share One Share One Share One Share One Share One Share 100%

Construction consortium

4


Litoral Centro External Advisors Concessionaire Arrangers:

Banks

BCP Investimento (PT)

n.a.

Caixa Banco de Investimento (PT)

n.a.

Banco Totta & Açores (PT)

n.a.

Mizuho (JP)

n.a.

DePfa-Bank Europe plc (IRL)

n.a.

Legal Advisors:

A.M. Perreira/Sáragga Leal (PT)

Miguel Galvão Teles, João Soares Silva & Assoc. (PT)

Insurance Advisors:

Solução (PT)

Jardine Lloyd Thompson Group (UK)

Technical and Designer Advisors :

Planvia, Coba, Cenorplan, Consulplano and Armando Brito (PT)

Symonds Group (UK)

Environment Advisors:

Arqais and Tecno 3000 (PT)

Traffic Advisors:

Diâmetro (PT)

Symonds Group (UK)

5


Litoral Centro Transaction Structure Banks

EIB

BRISAL

Portuguese Republic

Shareholders

(SPV)

Operator

Contractor

6


Litoral Centro Project Cost and Financing COST (Ex VAT) Civil construction Buildings and Equipment Design and Studies Expropriations

EUR m 517.8 9.7 9.0 32.7

% 72% 1% 1% 5%

FINANCING Equity Suplementary capital Operational cashflow Total Own Funds

Other start-up costs, fees 14.2 2% Interest during construction 49.9 7% Commercial bank debt Eligible project cost 633.3 88% EIB senior debt Total bank debt Payments to the state 46.7 7% Other non-eligible costs 37.3 5% Total project cost 717.3 100% Fotal project funding EIB debt / Eligible project cost = 42%

EUR m 17.4 160.0 13.3 190.7

% 2% 22% 2% 26%

262.7 263.9 526.6

37% 37% 74%

717.3

100%

The net funding requirement will be met by applying a 76/24 debt to own funds structure (exc. CF). 7


Litoral Centro Financing Plan – EUR m EQUITY • The company’s EUR 17m share capital will be fully underwritten and paid by mid-2008 and represents 2% of total estimated project cost. The shareholders also undertake to inject supplementary capital up to a maximum of EUR 160m, or 22% of project cost. • In case of project cost overruns, a standby commitment of the shareholders of up to EUR 45m will be available.

8


Litoral Centro BANK FINANCING • Construction period: • Commercial banks: EUR 7.5m working capital facility, available up to the term of the estimated construction period (31/12/2007). • Senior commercial bank debt: • EUR 263m (37% of project cost), variable rate, 25 (6) yrs (or 18.3 yrs average life). • Spread: 115 bp-130 bp, depending on level of debt service coverage ratios. • Up-front fee of 110 bp flat; commitment fee of 45 bp over availability period. • Hedging (with swaps) at fixed rate over construction period + 2 yrs. • EIB debt: • EUR 264m, covering 37% of project cost, or 42% of eligible cost, for 27 (6) years (19.2 yrs average life); disbursement period: 4 yrs, between Nov 2004 and Mar 2008. • Bank guarantees till maturity, with partial release from year 10, but not before 4 yrs after construction, subject to financial tests on the base case audited model. • Interest rate: “forward fixed” from financial closing to maturity, with prepayment (bermuda) option at pre-set dates without breakage costs from the 21 st yr, at every 6 months. 9


Litoral Centro Financing Plan – EUR m

COMMERCIAL LENDERS

BRISAL (SPV)

EIB

HEDGING BANK SHAREHOLDERS‘ EQUITY

10


Litoral Centro - Risk Matrix GRANTOR

CONTRACTOR

CONCESSIONAIRE

CONSTRUCTION RISKS GROUND CONDITIONS EXC. ARCHEOLOGICAL FINDINGS ARCHEOLOGICAL FINDINGS ROAD ALIGNMENT AND ENVIRONMENTAL APPROVALS DELIVERY OF PERMITS AND DESIGNS EXPROPRIATION CONSTRUCTION COST OVERRUNS DELAYS IN COMPLETION ROAD WIDENING

O&M RISKS TRAFFIC RISK INTEREST RATE RISK O&M (EXC. MAJOR REPAIRS) MAJOR MAINTENANCE LATENT DEFECTS

OTHER RISKS FORCE MAJEURE (NON INSURABLE) FORCE MAJEURE (INSURABLE) INSURANCE CHANGE IN LAW (EXC. TAXES AND ENVIRONMENT) CHANGE IN LAW (TAXES AND ENVIRONMENT) GRANTOR DEFAULT CONCESSIONAIRE DEFAULT

11


Litoral Centro Risk Management • “back-to-back” between Construction Contract and

Construction and O&M Expropriation Traffic/Demand

Inflation

Interest rate

Concession Agreement • turn key fixed price contract with O&M operator (BRISA), covering O&M obligations over the whole concession life. • unmitigated (fully borne by the concessionaire) • Traffic Support Equity Agreement (up to EUR 68m support from shareholders) • variable concession term dependent on Toll NPV (and level of Euribor interest rate)

• toll indexation at 90% of CPI • forward fixing coupled with variable rate. • the early concession termination mechanism also a function of variable one-year Euribor; the lower the interest rate, the earlier the concession reverts even if revenues remain unchanged. 12


Litoral Centro Variable Term 

The concession agreement foresees variable maturity, depending on NPV of tolls, with a max of EUR 917m.

In which: • rj - discount rate for year j (1-yr EURIBOR + 2% p.a, set as of the 1st working day of January of year j); • ri - discount rate for year i (calculated as above).

13


Litoral Centro Variable Term 

Min 22 yrs < Maturity < Max 30 yrs

The concession will end on the last day of the month following that in which the Toll NPV (collected and forecast) reaches the established max (according to model forecasts).

Estimates point out to 24 yrs.

EUR 42m up-front payment by the shareholders.

14


Litoral Centro Variable Term â&#x20AC;&#x201C; Traffic indexed VARIABLE TERM AREA

Maximum NPV

NPV Toll Revenues (EUR)

Concession length (Years)

MIN TERM

22 Grantor Traffic Upside

BASE CASE

24

Grantor BC Upside

MAX TERM

30

Downside Scenario

36

Traffic Support Agreement

15


Litoral Centro Variable Term â&#x20AC;&#x201C; Interest rate Indexed The early concession termination mechanism also a function of variable one-year Euribor; the lower the interest rate, the earlier the concession reverts even if revenues remain unchanged. Additional Cash Flow Available for Increased Financial Costs Euribor

Maximum NPV

27.5%

NPV Toll Revenues EUR

5%

2%

BASE CASE

MAX TERM

24

30

Years

Therefore, to partly mitigate a mismatch with fixed rate loans (EIB), the commercial banks loan has variable interest rate indexed to Euribor, after the first repayment of debt. 16


Litoral Centro Base Case Ratios

Banking Base case

Minimum ADSCR (ex cash)

Average ADSCR (ex cash)

Minimum LLCR

Minimum PLCR

Equity IRR

1.39

1.55

1.48

1.53

8.6%

ADSCR – annual debt service coverage ratio LLCR – loan life coverage ratio PLCR – project life coverage ratio

17


Litoral Centro EIB Security Package

Bank guarantees

• 10% of commited EIB loan to cover borrower compensation for deferment or cancellation of scheduled disbursements. • Capped at 110% of principal for 25yrs with release schedule agreed upfront.

Ancillary security

EIB Cash-Collateral

Year 25 Security

• Above 110% of guarantee cap. • Reserve account funded at 110% of unsecured outstanding, to be fully funded 1, or 2 yrs, prior to concession expiry date, if this between 22 and 26 years, or after 26 yrs, respectively. • Right to demand additional security if, 6 months before year 25 (expiry date of gtee), the project is performing below guarantee release thresholds.

18


Litoral Centro Other protection measures Dividends and subordinated debt payments

• Full clawback from the shareholders.

Rating

• Minimum credit rating requirement for any new shareholder acquiring shares of the concessionaire

Ownership

• BRISA to maintain at least 51% of BRISAL, during the life of the EIB loan.

Year 25 Security

• Right to demand additional security if, 6 months before year 25 (expiry date of gtee), the project is performing below guarantee release thresholds.

19


Litoral Centro Base Case Sensitivities Audited Sensitivities

ADSCR (min)

ADSCR (ave)

LLCR (min)

PLCR (min) (1)

Equity IRR

1.00

2.25

1.11

1.20

3.1%

1.27

1.45

1.39

1.43

6.2%

1.34

1.55

1.48

1.52

8.3%

Traffic 70% Symonds Base Case Traffic Cost Overruns O&M +50% and Major reparations & widening +25% (1) Other 12-month delay in construction

100% increase in the interest rate forward 1.19 3.22 1.42 1.53 curves (EURIBOR) (1) The PLCR was not object of audit. (2) As concerns sensitivities on O&M, BRISAL will enter into a fixed price contract with the O&M Operator which covers O&M obligations under the DBFO Agreement for the whole life of the concession.

Non-Audited Sensitivities

9.8%

ADSCR (min)

ADSCR (ave)

LLCR (min)

PLCR (min)

Equity IRR

Average EURIBOR of 2.5%

1.34

1.48

1.48

1.53

7.9%

Average EURIBOR of 5%

1.40

1.89

1.59

1.63

10.0%

Inflation -50%

1.05

2.43

1.32

1.42

5.5%

Inflation +100%

1.66

2.09

2.05

2.12

16.2%

Macroeconomic assumptions

20


Litoral Centro Risk Management EIB loan anniversary

% Released

% Guaranteed

10

40%

60%

15

30%

30%

20

20%

10%

25

Guarantee expires

0%

EIB unsecured as % of senior debt

EIB pricing of unsecured exposure =

Guarantee release anniversary

EIB outstanding (EUR m)

EIB unsecured (EUR m)

10

261

97

20%

15

218

138

35%

Release thresholds:

20

119

84

43%

Min ADSCR (ex cash) of 1.3

25 (guarantee expires)

10

10

100%

Min LLCR of 1.5

25 bps (0.25%)

21


Litoral Centro Quantitative Guarantee Release Criteria 1.

not less than 48 months shall have elapsed since the Project Completion Date;

2.

the ADSCR (without cash) is not less than 1.3:1

3.

â&#x20AC;˘

Ex-ante, for each Calculation thereof falling within the four (in the case of the First Release Date) or five (in the case of the Second Release Date and Third Release Date) consecutive years ending on 31 December falling on or immediately prior to the Release Test Date;

â&#x20AC;˘

Ex-post, the ADSCR (without cash) is projected to be not less than 1.3:1 for each of the consecutive Calculations thereof within the five consecutive years after the Release Test Date, commencing on the Calculation Date falling on or immediately following such Release Test Date and each ending on 31 December, the final such period ending on 31 December falling on or immediately after the fifth anniversary of the Release Test Date; and

the Loan Life Cover Ratio as at 31 December falling on or immediately prior to such Release Test Date is not less than 1.5:1. 22


Litoral Centro General Guarantee Release Criteria •

amounts released shared pari passu;

no default have occurred without waiver;

no material amendment to, or waiver of, any material provision of any Project Agreement or Finance Document other than one consented to or approved in writing in accordance with the terms of the Intercreditor Agreement;

no material amendment or modification to the Financial Model other than one consented to or approved in writing in accordance with the terms of the Intercreditor Agreement;

the Shareholders shall have complied fully with their obligations under the Equity Subscription Agreement, the Shareholders Support Agreement and the Traffic Support Agreement unless any failure has been waived;

the Reserve Accounts are fully funded in accordance with the Bank Facility Agreement;

the EIB Variable Term cash collateral account is fully funded; 23


Litoral Centro RiskEIB Management Credit Exposure (%)

- Litoral Centro

110

100

100 90 80 70 60 50

35

40 30

43

20

20 10 0 1

2

3

4

5

6

7

8

9

10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27

% Guaranteed

Loan at risk as a % of Senior Debt

As a result of the adopted release schedule, the security profile of the EIB loan is equivalent to a full bank guarantee for 16 ½ years, representing at least 85% of the average life of the EIB loan (19.2 years). 24


http://www.eib.org 25


case study: litoral centro - real toll motorway