On a different track

It might be tempting to look at the recent financial close for the €3.3 billion Bretagne Pays de la Loire (BPL) high-speed rail line – which was signed just one month after French rail agency Réseau Ferré de France (RFF) closed the €7.8 billion Tours-Bordeaux concession – and conclude that the larger sibling acted as a pathfinder for private sector investment in French high-speed rail projects.

There’s no denying that the two closings are inter-related: after all, if Tours-Bordeaux hadn’t reached financial close, it’s unlikely that BPL would have closed either. But that’s less to do with the private sector and RFF finding in Tours-Bordeaux a template it could reproduce, and more to do with the necessity of getting the elephant that was Tours-Bordeaux out of the room.

And by elephant, we are not just referring to Tours-Bordeaux’s massive size, which was always going to make it a tricky deal to finance, but rather to its idiosyncratic nature, which singled out Tours-Bordeaux as the only high-speed rail project in RFF’s stable to be procured as a concession, exposing the private sector to traffic risk…post credit-crisis.

BPL – while a sizeable project in its own right – is, by comparison, a plain vanilla public-private partnership (PPP) with no traffic risk and a fixed availability payment from the government over the course of its 25-year concession. Availability payments are public contributions paid in exchange for making an asset available in good condition.

Night and day

That risk profile makes a world of difference when it comes to BPL’s financing package.

When VINCI had to gather €1.67 billion in debt from eight commercial banks to close Tours-Bordeaux, it had to resort to a government guarantee to cover €1.06 billion of that debt to lower costs and keep banks at the negotiating table. And rightly so, because the unsecured €612 million of commercial debt will pay a whopping 300 to 400 basis points over the loan’s 27-year tenor.

For BPL, sponsor Eiffage raised €1.03 billion in debt from 12 commercial banks. That breaks down into an €807 million construction facility, paying margins of 195 basis points, and a 19-year, €222 million term loan starting at 195 basis points and rising to 220 basis points. The €807 million construction tranche will then be refinanced by a joint, 25-year loan from the European Investment Bank (EIB), amounting to €553 million, and savings managed by state-backed Caisse des Depots (CDC), the Fonds d’Epargne, totalling €254 million.

Once the EIB and CDC refinance the construction tranche, which corresponds to 80 percent of total debt, they will receive BPL’s availability payments directly from the government under France’s Dailly law, turning the Dailly tranche into a quasi-sovereign loan. That effectively leaves commercial banks with just 20 percent of the debt exposed to project risk post-construction.

The lower pricing on BPL’s funding package is not just a consequence of its PPP structure, it’s also a result of the funding competition launched by Eiffage once it was nominated preferred bidder for the project.

Whereas Tours-Bordeaux closed with nine commercial banks, half of which were French, BPL counts 12 commercial banks, only two of which are French – SG and Banque Commerciale pour le Marché de l’Entreprise. The rest of the commercial bank club includes BBVA, Bank of Tokyo Mitsubishi, BayernLB, DZ Bank, ING, Mizuho, Santander, SMBC and Unicredit.

The remaining funds for this 182-kilometre high-speed rail line crossing the west of France will come from the sponsors, RFF and central and local governments. The project includes €1.8 billion in public subsidies and also has a portion of over €300 million that will not be procured as a PPP. The debt-to-equity ratio for the deal breaks down to 89:11.

End of the line

With Tours-Bordeaux and BPL out of the way, RFF still needs to award the smaller, 80-kilometre Nimes-Montpellier line, connecting two cities in the south of France. Like BPL, Nimes-Montpellier is being procured as a PPP, with RFF expecting final offers in October from consortia led by Bouygues, Eiffage and VINCI. 

And after the latter is done and dusted? Expect a slowdown in high-speed rail activity.