Ten banks close France’s first rail PPP

French rail agency RFF and a VINCI/AXA Private Equity-led consortium have finally reached financial close on the €1bn GSM-R rail communications PPP, after several months of delays. The deal is France’s first rail PPP but is unlikely to serve as a template for the other high-speed rail deals being managed by RFF.

After almost eight months of delays, rail agency RFF’s €1 billion GSM-R rail communications project has reached financial close, becoming the first French rail public-private partnership contract to do so.

Source: RFF /CAPA /
Julien Hekimian (TOMA)

The project was awarded to a VINCI / AXA Private Equity / SRF/ TDF consortium last year and will require them to implement uniform communications technology across the remaining 11,000 kilometres of France’s rail network. The system will be used for both conventional and high-speed railway lines in France, including the high-speed projects RFF is currently procuring.

Calyon, who fully underwrote the deal last year, led eight commercial banks – BBVA, BayernLB, Dexia, Intesa, KfW, Santander and Sumitomo – and two public institutions – the European Investment Bank (EIB) and Caisse des Depots et Consignations (CDC) – in providing a €572 million debt package for the deal. That package breaks down into €520 million of senior debt; a €35 million contingency facility; and a €17 million VAT facility.

But the commercial banks are only effectively lending the €520 million – equivalent to the project’s capex – for the length of the five-year construction period. Once construction is done, the EIB and CDC refinance about €400 million of that amount for the duration of the contract, leaving the commercial banks with €120 million exposed to the operational period.

Tenor on the commercial bank loan, which pays margins of 250 basis points rising to upwards of 300 basis points, is 14 years with the EIB and CDC portion covering the entire 15-year contract. The sponsors are contributing €58 million in equity with RFF chipping in €160 million. The project’s €1 billion cost includes €520 million in capex and €430 million in opex.

Originally, GSM-R was scheduled to reach financial close at the end of last June but was dealt a severe blow when equipment provider Nortel went bankrupt. Nortel, a Canadian firm, had already installed its GSM-R technology on some 2,700 kilometres of France’s rail network and was imposed by RFF on the consortium as the equipment provider for the PPP project. Nortel’s status was only cleared last November, when Austrian supplier Kapsch bought its global GSM-R business.

However, while that paved the way for commercial banks to reach financial close, CDC and the EIB got cold feet regarding RFF’s continuing status as a public company. Specifically, both institutions wanted guarantees from the French government – which they obtained this week – regarding the GSM-R contract in the event that RFF is privatised during its 15-year period.

But while commercial banks were comfortable with RFF’s status for this project, a source close to the process warned this deal is unlikely to serve as a template for the multi-billion euro deal pipeline that RFF has under procurement:

“This project only lasts for 15 years and rail technology moves rather slowly, so both the sponsors and the commercial banks did not need assurances regarding RFF. But for some of the high-speed rail projects the agency has under procurement, with concession lengths of 30 or 50 years, things might not be so easy on the commercial side,” the source warned.

However, the fact that both the public and private side were able to work together through eight months of delays to close the GSM-R deal, without either side giving up, bodes well for RFF’s multi-billion euro high-speed rail programme – even if other deals might be similarly hard to close.