The Balfour Beatty/ Skanska-led consortium Connect Plus and the UK Highways Agency have finally signed the £6.2 billion (€7.1 billion; $9.7 billion), 30-year contract for the widening and maintenance of the M25 motorway.
Connect Plus, advised by HSBC, was named preferred bidder by the Highways Agency back in May last year, but difficulties in raising adequate financing meant it missed its original closing target at the end of 2008.
After much chopping and changing of how the deal would be funded over the past few months, sources close to the situation finally confirmed the financing has taken the form of a ratchet loan provided by a syndicate of 16 banks in addition to a sizeable European Investment Bank (EIB) loan.
The bank group is lending a total of £950 million split roughly equally between the institutions, with the EIB chipping in a further £400 million of debt. Margins on the debt begin at 250 basis points (bps), rising to 300 bps in year 7 and 350 bps in year 10. The financing group in full comprises: Bank of Tokyo-Mitsubishi, BBVA, Barclays, BayernLB, Calyon, Dexia, Helaba, HSBC, KfW, Lloyds TSB, National Australia Bank, Natixis, RBS, SMBC, Société Générale and WestLB.
The government will no doubt be relieved that the deal has been signed off during the first half of the year, meaning the extra lane in the project specification should now be deliverable in time for the start of the Olympic Games in 2012. Connect Plus will be under pressure to ensure this takes place.
One source described the deal’s closure in the current financial climate as a “total miracle”. The source added that for the parties involved in the transaction to get this level of funding, albeit with a considerable helping hand from the EIB, sends a signal to the market that PFI projects are not dead – and may give a boost to the market to the market as a whole.
A number of smaller PPP deals are currently trying to attract funding. One example is the Carlisle Northern Development Route PFI, a £150 million road scheme in Cumbria for which a Balfour Beatty-led consortium was named preferred bidder back in November 2007. Sources close to the deal say it is now at the credit committee stage with a small banking group set to sign on the dotted line. Other similar projects currently at the preferred bidder stage might not be too far behind.