Meridiam closes UK uni with unwrapped project bond

The circa £145m inflation-indexed private placement has a 41-year maturity and an A- rating from S&P.

A consortium led by French fund manager Meridiam Infrastructure has reached financial close for a UK university project using an innovative private bond placement. 

The £190 million (€223 million; $290 million) University of Hertfordshire accommodation scheme was closed with a circa £145 million indexed-linked, unwrapped bond with a maturity of 41 years – “the first of its kind to be implemented in Europe,” the Meridiam team claimed in a statement. 

Ratings agency Standard & Poor’s (S&P) rated the bond A- with a stable outlook, citing the deal’s lower than average gearing – around 75 percent, compared with 80 to 90 percent for a typical Private Finance Initiative (PFI) project – and strong debt service coverage ratio.  S&P also points out the project carries limited construction and facilities management risks and benefits from “strong demand for on-campus accommodation, and limited supply”. 

“This project will be a concrete example of intergenerational solidarity as promoted by Meridiam,” commented Thierry Deau, chief executive of Meridiam. “Long term savings of future pensioners are mobilised today to finance a project key to a young student population that will in return contribute to the UK long-term competitiveness. The innovative long-term bond financing of this project is a first-of-its kind in Europe and paves the way for the development of project bonds all over Europe.” 

The University of Hertfordshire PFI will require the winning consortium to design, build, finance and operate over 3,000 bedrooms of student accommodation and associated social spaces. By 2016, 2,500 new bedrooms should be constructed with a construction cost of some £117 million, with 500 bedrooms to be refurbished during the same time period. The project also involves a 50-year, £200 million facilities management contract. 

In addition to Meridiam (55 percent), the private sector consortium also includes Bouygues Development (13.3 percent), a subsidiary of Derwent Living (13.3 percent), University of Hertfordshire (13.3 percent) and Legal and General Assurance Society (5 percent). 

Meridiam closed its second European infrastructure fund – which is funding the university deal – last year on €935 million. In 2012, it also closed a North American-dedicated fund on $1.05 billion. Both are 25-year funds targeting greenfield investments.