The A28 Toll Motorway: an Innovative Approach to Financing

The A28 Toll Motorway: an Innovative Approach to Financing


J-Y Goavec, EGIS Projects, FR



Since the early 1960s, most of the motorway network in France has been built under concession schemes, primarily by six public and one private concession companies. Until the year 2000, the extension of the motorway network was granted to the existing concession companies and the new motorway sections were financed by the revenues of the existing sections of the network. This system is called ?adossement?. European regulations have now banned forbidden this practice and it is compulsory for the grantor (the State) to issue a tender in order to select the concessionaire of new motorway sections. Thus, it is necessary to find new resources for the financing of the network. This paper describes the innovative approach to financing of the A28 toll motorway in France for a DBFO scheme, which has been awarded the title of ?the deal of the year? by Project Finance International.

The A28 motorway is a 125 kilometre stretch of north-south motorway in Normandy, connecting the A13motorway (Paris-Rouen-Caen) to the north to the existing A28 motorway at Alençon to the south.

The Project consists of the construction, operation and maintenance of a dual two-lane carriageway and includes six interchanges.

The motorway is expected to open to traffic in December 2005. The following tables provides an overview of the main milestones for the Project:

Date Milestones

9 April 2001 Signature of the Concession Contract
2 December 2001 Entering into force of the Concession Contract
28 June 2002 Financial Closing
July 2002 Start of construction
December 2005 Opening to traffic
End of 2067 End of Concession

The sponsors created the ALIS Concession Company in 1999. The shareholding of ALIS is presently as follows: Bouygues TP and affiliates : 44.84% CDC Finance ? CDC IXIS: 26.00% Egis SA: 8.00% Société des Autoroutes Paris Normandie (SAPN): 8.00% Uberior Infrastructure Investment Limite: 13.16% Therefore, the Concession Company groups together all skills and competences necessary to implement the project:
* Construction: Bouygues and its affiliates,
* Design: Egis,
* Operation and Maintenance: Egis and SAPN, and
* Financing: CDC IXIS and Uberior.

The diagram below (to be presented and described in detail for the final paper) provides a summary of the main contractual relationships between the parties in the Project and the State authorities.

ALIS expects that as at the opening to traffic, the total project?s costs will be EUR 917 million: USES SOURCES Land AcquisitionConstruction CostsConcessionaire CostsReimbursement SAPNFinancial CostsReserve account Senior DebtReserve Account MezzanineCash available end constructionVAT 51.1668.660.417.665.732. Equity & Quasi EquitySubsidiesSubsidies land & bridgesSAPN DebtMezzanine Debt (B Bonds)Senior Debt (A Bonds) 58.2331.311.917.637.5460.5 TOTAL 917.0 Total 917.0

The ALIS Project will be financed by using:
(a) the proceeds of the share capital subscribed by the shareholders,
(b) the proceeds of subordinated debt provided by the Junior Funding providers,
(c) subsidies granted to it by the Grantor and certain French local authorities,
(d) the proceeds of the issue of the B Bonds, the mezzanine debt, and
(e) the proceeds of the issue of the A Bonds (indexed linked bonds), the senior debt. The A Bonds issue is guaranteed by Financial Security Assurance Ltd acting as a monoline insurer.

The senior debt consists of issuing indexed-linked bonds, the A Bonds, for a total amount of EUR 460.5 million. The bond issue comprises three tranches with bullet repayment at their respective maturity:
* Tranche 1 for EUR 80.5 million over 15 years offered at a coupon of 3,99% to yield 60 bp over the interpolated yield of the 2009 and 2029 OATi (France?s inflation indexed-linked government bond),
* Tranche 2 for EUR 180 million over 25 years offered at a coupon of 4.25% to yield 81bp over the interpolated yield on the 2009 and 2029 OATi, and
* Tranche 3 for EUR 200 million over 30 years offered at a coupon of 4.30% to yield 85bp over the 2029 OATi.

The EUR 460.5 million inflation index-linked issue was wrapped up by Financial Security Insurance Ltd (FSA). As a monoline insurer, FSA provides an unconditional and irrevocable guarantee of coupon and principal repayment, and bonds are thus rated AAA/Aaa by Standard & Poor?s and by Moody?s. The issue has been fully subscribed, mostly by French investors.

Traditionally, project financing for DBFO schemes is achieved through senior bank debt, combined with equity and subsidies. By the time of the financial close, the Euroland index-linked bond market was only two years old, and only public entities were able to issue bonds on this market. It was therefore a challenge for a private company to issue such bonds on a project finance basis. Eventually the indexed linked bonds provided substantial benefits to the project economics, as it allowed long term maturities, and attractive interest rates.

A major result of the innovative approach to procuring financing for the A28 motorway scheme could be the use of this model for future infrastructure projects in Europe.


Association for European Transport