Banks to guarantee EIB portion for €3.3bn road deal

The club of around 20 commercial banks working on Slovakia’s D1 highway PPP are prepared to guarantee about €800m of a €1bn EIB loan while the government awaits state aid clearance from the EU to cover the loan. Dutch pension managers APG and PGGM will invest directly in the project.

A club of close to 20 banks is working hard to make sure the €3.3 billion first stretch of Slovakia’s D1 highway public-private partnership (PPP) reaches financial close by the end of May this year.

The first stretch of the D1 highway, which crosses the country, will run over 55 kilometres from Martin to Presov. The private sector will operate it for 30 years during which it will receive availability payments – public contributions paid to the concessionaire in exchange for making the road available in good condition.

To make sure the deal closes in the coming weeks, commercial banks are prepared to guarantee around €800 million of a €1 billion loan to be provided by the European Investment Bank (EIB). Under its rules, the EIB is not allowed to lend more than €200 million for a project without the remaining portion being guaranteed.

Previously, the Slovakian government said it would guarantee the €800 million portion of the loan, traditionally covered by commercial banks, because there wasn’t enough liquidity in the market. It will still do so, but since the state guarantee needs to be cleared by the European Union, banks decided to provide a ‘bridge’ guarantee to allow the deal to close without any further delays. Once the EU clears the state guarantee, it will replace the one being provided by commercial banks.

A source close to the deal suggested the final debt-to-equity ratio will be typical of this type of deal, and could end up being around 85:15. If that were to happen, the commercial bank club – which includes the likes of BBVA, Bank of Tokyo Mitsubishi, BES, BNP Paribas, Calyon, Dexia, Erste Bank, ING, KfW, Natixis, Societe Generale and Unicredit – could end up providing a loan of around €1.55 billion.

The EIB would provide the above-mentioned €1 billion while the European Bank for Reconstruction and Development is onboard for €250 million, bringing the total debt package to €2.8 billion.

Previous conversations with commercial banks indicated that the loan would be cash-swept at year ten and would pay over 300 basis points over LIBOR, the London interbank lending rate. A cash sweep is a mechanism which sifts all of the money an asset generates to repay debt starting from the year it is fixed. This strongly incentivises concessionaires to refinance the loan before the cash sweep kicks in, regardless of the final loan tenor.

That would leave the concessionaire – comprising Bouygues, Colas, Doprastav, Intertoll, Meridiam, Mota-Engil and Vahostav – to write an equity cheque of some €500 million. However, the consortium has recruited Dutch pension fund managers APG and PGGM together with DIF to contribute about half of that amount, the source said.

Financial close for this first stretch of the D1 would allow a Hochtief-led team to start working on closing the second part of the D1, which costs an estimated €2 billion.