PPP ‘loan tenors increasing, margins slowly easing’

The European PPP Expertise Centre found that the average tenor for senior debt exceeded 20 years in 2010 with average loan margins hovering between 240bps for construction and 275bps when loans approach maturity. 112 PPP deals worth more than €18bn reached financial close last year.

The European PPP Expertise Centre (EPEC), a European Union initiative to support public-private partnerships (PPP), stated in a recent report that the “European PPP market bounced back in 2010” with “loan tenors increasing and margins slowly easing” for PPP debt.

EPEC found that 112 PPP deals worth more than €18 billion reached financial close across Europe last year, reversing the decline in PPP transactions reaching financial close that had become a trend since 2007. However, last year’s performance is still far away from the more than €25 billion in PPPs closed each year between 2005 and 2007, the market peak.

In other good news, “banks seem to progressively return to PPP assets,” EPEC stated. The PPP body also indicated that “soft ‘mini perm’ structures” appear to be used less frequently, although it said the data was not sufficiently strong to reach a definite conclusion on that point.

The average loan tenors exceeded 20 years in 2010 with half of the PPP deals closed registering maturities of more than 25 years. EPEC added that certain deals closed in Sweden, Belgium, UK, Spain and France actually recorded loan tenors of 27 years.

In terms of pricing, EPEC found that the average loan margin was close to 240 basis points during the construction phase stepping up to 275 basis points when loans are approaching maturity. This increase is contrary to the step-down usually experienced when construction ends and projects become less risky, but is probably tied to refinancing risks for longer tenors, EPEC said.

The lowest construction phase margin stood at 180 basis points with the highest ascending to 425 basis points in 2010, the PPP body said. EPEC also noted that European PPPs are becoming increasingly reliant on “governments and public international financial institutions” for “funding and financial support”.

Despite strident opposition to PPPs, the “UK remains by far the most active market across the EU followed by France, Germany and Spain,” EPEC said. However, Spain has become “the largest PPP country in value terms, overtaking the UK for the first time”.

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