The Bouygues-led Arelia consortium closed a Eu671 million ($878.1 million) financing for a PPP concession for the Paris courthouse, also known as Tribunal de Grande Instance de Paris, on 15 February. The deal is one of the first sizeable PPP concessions to close since the escalation in the Eurozone crisis in the middle of 2011, and demonstrates that there is still appetite among some European lenders for providing long-term project debt for large greenfield PPPs.

The 32-year availability-based design, build, finance and maintain concession involves building a completely new court building in the heart of the Batignolles district, which will house both the Tribunal de Grande Instance of Paris and a police court. The new facility, once constructed, will take the form of a 160m tall skyscraper, making it the second largest building in Paris after the Eiffel tower. The project is designed to deal with problems caused by inadequate space at the Palais de Justice, where the Tribunal de Grande Instance is currently located; some of its files are being stored in a courtyard because of the lack of available space.

The French Ministry of Justice tendered the project in June 2010, set a deadline for first- round bids of November 2010, and pulled in two bids: a Bouygues-led consortium, advised by Credit Agricole, and Vinci, advised by Natixis. Bouygues opened up its shareholding during the bidding stage to a number of financial sponsors – DIF, Eibiria and SEIEF. Bouygues typically seeks to hold less than 20% of the equity in a project to avoid consolidating its PPP investments.

With bidders required to provide letters of support from banks at the second bidding stage in June 2011, Bouygues approached the bank market in the first quarter of that year and received oversubscribed support from a group of five banks: BayernLB, BBVA, Credit Agricole, Societe Generale and SMBC. All five of the banks then provided fully underwritten offers for 100% of the debt financing at best and final offer stage in October.

In November the grantor settled on the Bouygues-led consortium as preferred bidder for the project and the sponsors then had a tight 10-week deadline to reach close. The project, which went from first bids to close in just over a year, is a good indication that the use of alternative forms of financing in public procurement need not be the cause of delays, though the pressure to close the deal before the presidential elections certainly contributed to the short timeframe.

The sponsors expanded the group of banks after the best and final offer stage to include BTMU, HSBC and NordLB. These lenders did not receive credit approvals in time for the final bid, but received them shortly afterwards. Credit Agricole dropped out shortly after BAFO because of its unwillingness to match the pricing proposed by the sponsors, suggests one source close to the process.

The Eu591 million in long-term debt is split between two construction loans, of Eu500 million and Eu50 million, which is then covered by a Dailly guarantee during operations, and a Eu41 million uncovered commercial bank tranche. The construction loan is split into two tranches because the smaller amount has a corporate guarantee.

The tenor on the Dailly debt is 30 years, while the uncovered commercial tranche has a tenor of 13 years, which the sponsors will look to refinance later. BTMU and SMBC took the largest tickets, while NordLB held the smallest amount since it was the only bank not to lend on the uncovered tranche. Both tranches are fully amortising and there is no grace period on the loan, with repayments due to start with the beginning of commercial operations in 2017. There are no cash sweeps on the uncovered commercial tranche.

The financing is rounded off with a Eu65 million equity bridge loan during the construction phase and a Eu15 million 5- year VAT revolver. There is also a debt service reserve account, equivalent to six months of debt service obligations. The pricing on the Dailly debt is 170bp, while the pricing on the uncovered commercial bank debt starts at 250bp rising to 300bp after year 10. The average debt service coverage ratio on the uncovered debt is set fairly aggressively, at 1.8x. The banks’ fees are 200bp.

The margins on the debt, which were set at best and final offer stage, demonstrate the increasing costs that banks face in providing long-term debt for projects, even when this debt benefits from a cession Dailly, a quasi-state guarantee. That the sponsors were able to raise Eu671 million in debt from a group of seven banks and with a tenor of 30 years is impressive. But noteworthy also is the presence of only one French bank on the deal, and that most of the lenders benefit from low-cost funding.

First drawdown on the debt took place in March, to fund the first stage of construction. Construction is due to be complete in 2016, with the aim of starting operations by mid-2017. One challenge will be the sponsors’ need to apply for a permit to build the facility and obtain this by 2013. Market rumour suggests that if awarded this might be challenged by members of the legal community because of the new building’s unfavourable location on the outskirts of Paris.

Arelia
STATUS: Financial close 15 February 2012
SIZE: Eu671 million
DESCRIPTION: Financing for the construction of a new courthouse for the Tribunal de Grande Instance of Paris, in the Batignolles district
GRANTOR: Ministry of Justice
SPONSOR: Bouygues, Dutch Infrastructure Fund, South Europe Infrastructure Equity Finance, Eibiria
MLAS: BayernLB, BBVA, BTMU, HSBC, NordLB, SMBC, Societe Generale
GRANTOR’S FINANCIAL ADVISER: KPMG
GRANTOR’S LEGAL ADVISER: Clifford Chance
SPONSORS’ FINANCIAL ADVISER:Credit Agricole
SPONSORS’ LEGAL ADVISER: Orrick
LENDERS’ LEGAL ADVISER: Salans
TECHNICAL ADVISER: Mott MacDonald
INSURANCE ADVISER: Marsh
MODEL AUDITOR: Deloitte
EPC CONTRACTOR: Bouygues Batiment International
ARCHITECT: Renzo Piano