The Balard French Ministry of Defence headquarters PPP was one the largest availability-backed deals to close in France last year – and the largest defence PPP project in the EU. The global move towards economic and energy infrastructure and growing unease over the Eurozone crisis has made social infrastructure a particularly difficult market to finance. The close of a Eu806.40 million ($1.062 billion) French PPP project in this context was noteworthy – particularly given the sensitive balance between the interests of private and public sector on a national security project.

The 30-year design-build-finance-operate concession entails the development of a new headquarters for the French Ministry of Defence in the Balard area on the outskirts of Paris. The project will consolidate the various French armed services operations at a single site.

Dubbed the “French Pentagon”, Balard will, by 2014, accommodate 9,300 people on a single, renovated, modern and functional 320,000m2 site. In addition to the French military’s operational centres, facilities will include secured computer networks, restaurants and canteens, housing for 900 people, press and conference centres, nurseries and sports facilities.

The French Ministry of Defence selected the Opale Defense consortium (comprising Bouygues (16%), Exprimm (2.9%), Thales (6%), Sodexo (6%), Dalkia (2%), FIDEPPP (16.5%), SEIEF (16.5%), OFI Infravia (0.1%) and CDC (34%), with Dexia and Natixis as financial advisers) as preferred bidder for the project in March 2011: Opale beat rival offers from a Vinci/GDF Suez consortium, advised by BNP Paribas, and Eiffage, advised by HSBC.

Opale had oversubscribed support from Dexia, Natixis, BBVA, CIC and Societe Generale at BAFO. This left no debt shortfall to be made up through a funding competition. The project closed with Eu806.40 million of 30-year debt from the five banks. Initially the bulk of this is made up of a Eu712 million construction loan, with a tenor of just under 5 years and carrying a 195bp over Euribor margin. This is accompanied by a Eu78 million equity bridge loan with a similar tenor, and a Eu16 million VAT revolver.

At the operation phase the Eu712 million construction debt converts into a Eu648 million Dailly tranche, which is repaid by the government during the operation phase, and a 10.5 year Eu64 million project tranche carrying construction risk. Under French PPP regulation there is an 80% cap on the amount of Dailly debt on any given project and Balard is at the top end of the scale. The Dailly tranche’s tenor matches the full 30 years of the concession.

Syndication of the debt was launched on 3 June 2011, with Dexia, Natixis and BBVA as joint bookrunners looking to syndicate between Eu200 million and Eu300 million, and offering tickets of either Eu75 million or Eu50 million.

Syndication closed on 19 September with three international lenders – DZ Bank, SMBC and BTMU – taking tickets of Eu50 million, Eu75 million and Eu100 million respectively.

Despite being a low risk deal the syndication was not straightforward. Bank appetite waned in the face of the Eurozone crisis. And pressure on banks’ cost of funding and exposure to stricken sovereign credits led to a number of lenders declining to participate, despite earlier expressing interest. The low risk Dailly tranche, priced at 120bp, was enough to attract initial bank interest, but from bid to close the market had moved on. Despite the difficult circumstances the syndication closed with 10% oversubscription.

An innovate aspect of the project is a legal mechanism allowing the exclusion or neutralisation of any shareholder threatening French national defence interests, while also preserving the financial interest of the investor in accordance with French privatisation rules. This was created at the behest of the French Ministry of Defence, in co- ordination with the investors.

The Ministry of Defence also awarded Opale a portion of land attached to the site for real estate development. The real estate portion is ring-fenced from the main project, as it carries very different risks, but the project company sells the land to a developer and uses the proceeds to finance the main project. Opale has selected AXA Real Estate Investment Managers to develop a large office project on the site. There is a suite of corporate guarantees in place to ensure lenders see these proceeds because they are built into the project’s financing.

Opale Defense SAS
STATUS: Financial close 30 May 2011␣
DEBT: Eu806.40 million
DESCRIPTION: 30-year DBFO concession for a new headquarters for the French Ministry of Defence in the Balard area in the outskirts of Paris.
GRANTOR: French Ministry of Defence
SPONSORS: Bouygues Batiment Ile-de- France (16%), Exprimm (2.9%), Thales Communications (6%), Sodexo France (6%), Dalkia France (2%), FIDEPPP (16.5%), SEIEF (16.5%), OFI Infravia (0.1%), Caisse des Depots et Consignations (34%)
MLAS: BBVA, BTMU, Credit Mutuel CIC, Dexia, DZ Bank, Natixis, Societe Generale, SMBC
LENDER LEGAL COUNSEL: Salans; Linklaters (hedging)
SPONSOR LEGAL COUNSEL: Jones Day; Orrick Rambaud Martel
SPONSOR FINANCIAL ADVISORS: Dexia; Natixis
GRANTOR FINANCIAL ADVISOR: Deloitte
GRANTOR LEGAL ADVISOR: Hogan Lovells