The €195 million ($262 million) Zaanstad prison PPP in the Netherlands is the first project financing to close using the Pebble-Commute structure from ING and NIBC. Institutional investors provided a senior debt financing that matched the 25-year duration of Zaanstad’s concession allowed the sponsor to demonstrate value for money to its government client.

Pi2

Status

Closed 29 September 2013

Size

€195 million

Description

New build prison in the municipality Zaanstad in the Netherlands to replace the current prisons PI Overamstel and Haarlem

Grantor

Rijksgebouwendienst

Sponsor

Ballast Nedam

Equity

€12 million

Debt

€85 million in permanent facilities,

€110 million in ancillary facilities

A note arrangers and B loan providers

ING Bank and NIBC Bank

Construction joint venture

Ballast Nedam (65%)

Imtech (35%)

Financial adviser to the sponsor

PwC

Legal adviser to the sponsor

Allen & Overy

Legal adviser to the lenders

Stibbe

Technical adviser to the lenders

Turner Townsend

Lenders’ insurance adviser

Marsh

The Pebble-Commute structure is a derivative of the Pebble product that ING launched to market in early 2012. The permanent debt is split into a long-term senior A note and a subordinated, short-term B note. The subordinate B loan improves the credit of the remaining A note, making it more attractive to institutional investors. The debt does not have to be rated, and on Zaanstad sole sponsor Ballast Nedam decided not to get a rating because of the strong appetite it encountered from investors during the period before it submitted its best and final offer.

The total debt package consists of €72 million in A notes, a €13 million B loan, about €12 million in equity bridging loans, €42 million in working capital facilities and about €56 in bridge loans to two €28 million milestone payments. Only the first two facilities are permanent, while the other facilities are three-year, with sponsor equity refinancing the equity bridge, payments from the grantor, the Rijksgebouwendienst, the milestone bridge, and draws on the A notes the working capital facility.

ING and NIBC will provide the €13 million subordinate B loan. This loan will be first loss, first pay and has a tenor of seven years. The B loan was priced at around 550bp over Euribor, without step-ups.

The Pebble-Commute structure differs slightly from the original Pebble structure, because the B loan will fund immediately, rather than at specified points during construction alongside the A note. While the project itself is investment grade, NIBC does not hold an investment grade rating, and staggered draws might expose the project to funding risks

ING and NIBC placed the 28-year A note privately to institutional investors, with Dekabank taking a €30 million ticket on the A note. The A note amortises without the use of cash sweeps or margin step-ups, and has a one-year tail before the end of the project’s concession. The fixed rate debt priced at the equivalent of 200bp over Euribor, and features prepayment protection.

The A note will fund in four equal instalments, which will pay down the draw on the construction revolver. The first draw on the A note will be August 2015, the second in October 2015, the third in December 2015, and the last in September 2016. The staggered drawdown schedule minimises negative carry and allows the A note investors to use the capital they have committed elsewhere until each drawdown date.

Once construction on the project is complete and it is fully operational, the government will make two milestone payments of €28 million to the project company, which it will use to pay down the milestone bridge facility.

The standard Pebble structure would use a dedicated financing company separate to the project company, but on Zaanstad the project company was the borrower because the project size was relatively small.

The debt to equity ratio is 90:10. Ballast Nedam will provide 100% of the equity, but has formed a construction joint venture with Imtech for the construction of the prison (Ballast Nedam 65%, Imtech 35%).

The design, build, finance, operate and maintain concession involves constructing of a new prison in the municipality of Zaanstad. The project, first announced in 2008, is part of a plan to replace old prisons that require a high number of staff with new, more efficient prisons. The construction period is 32 months, with completion expected by June 2016. The grantor will make quarterly payments to the project company, Pi2.