Américo Vespucio Sur Toll Road


The Vespucio Sur Project is the fourth of the urban toll road projects to reach financial close in the Chilean capital Santiago, writes Alex Black.

The project includes upgrading three lanes in each direction on the 24km stretch of Americo Vespucio between Route 78 and Grecia Avenue, the construction and upgrade of local roads, and a 23km public transport corridor. It also includes the construction of 29 new underpasses and overpasses.

Described as ‘one of the most interesting PFI road projects in South America’, the Santiago highway project came about after the Chilean government, under pressure to relieve the city’s gridlocked roads, decided to offer four PFI electronic toll collection road projects to the private sector.

In the case of Vespucio Sur, seven companies initially bid for the 30-year concession, but the Chilean Ministry of Public Works (MOP) awarded Spanish construction giants Sacyr Vallehermoso and Acciona and its jointly-owned Chilean subsidiary Sociedad Concesionaria Autopista Vespucio Sur the contract in 2001.

Project costs are around US$670m, with debt arrangements covering more than US$500m. The project was notable for achieving the lowest pricing in the history of Chilean infrastructure financing, but it was also denominated totally in the Chilean currency, the peso.

The transaction

The project company issued project bonds on 11 November 2004 at a record-low interest rate of 4.59 per cent and was over-subscribed by 20 per cent.

The bonds were insured under a financial insurance policy issued by XL Capital Assurance, and formed part of a multi-tranche financing structure involving a direct loan from Instituto de Crédito Oficial of Spain, a discounted sale to Banco Santander-Chile and Santander Investment Chile of payment obligations of the Ministry of Public Works (MOP). They also included a value-added tax credit line provided by Banco Santander-Chile.

The scheme was split into three tranches.

Tranche one consisted of US$5m 4.5 per cent senior bonds due in December 2028 (US$142m) issued in Chile and underwritten by Banco Santander-Chile and Santander Investment Chile Limitada with financial insurance policy wrap provided by XL Capital Assurance.

The second tranche consisted of a US$106m direct senior loan provided by Instituto de Crédito Oficial de España (ICO).

The thrid tranche contained US$215m discounted sale and securitisation of payment obligations (Resolutions) of the Chilean Ministry of Public Works related to Convenio Complementario No. 1 provided by Banco Santander-Chile and Santander Investment Chile Limitada.

However, the agreement was only signed after the parties signed an amendment to the concession requiring the project company to perform additional works, including the construction of a metro line along the route of the highway.

The new works doubled the cost of the project and led to difficult negotiations with the MOP relating to the establishment of an acceptable payment mechanism for the increased cost of the project.

The MOP ultimately agreed to issue irrevocable payment obligations based upon the progress of the works, which the project company will sell on a discounted basis to guarantee the receipt of necessary funds to pay construction costs.

Banco Santander-Chile acted as financial advisor and will purchase these MOP obligations throughout the construction period.

Richard Puttré from the Madrid office of law firm Jones Day acted for the sponsors and the project company.

‘The additional works obviously increased the construction funding requirements,’ he says, ‘but the final agreement with the MOP made it possible to access funds as needed during the construction period.

‘After a long negotiation process and careful structuring of various debt products, the sponsors achieved a highly efficient financing, denominated totally in Chilean currency. The demand for the bonds and their very low interest rate together with the participation of ICO without the financial insurance wrap underscore the strength of the sponsors and the prospects for the project.’

This represents a departure from the financing structure of the other toll roads in Chile, which normally relied on the insurance coverage for these tranches of debt.

The financing was also notable for the participation of Instituto de Crédito Oficial as a direct, senior lender and Banco Santander-Chile, as VAT credit line provider, in each case without the wrap of the financial insurance policy.

The original four concession roads were such a success that the MOP added a fifth project. The first four are now all under construction meaning Santiago has around US$2 billion worth of road improvements in progress.

The fact that deals like Vespucio Sur have been demoninated entirely in the Chilean Peso is shows the strength of the market and the confidence shown it by both local and foreign investors.

Project

Américo Vespucio Sur Toll Road

Market

Transport

Sector

Road

Country

Chile

Region

Santiago

Date of financial close

11 November 2004

Sponsors

Acciona and Sacyr Vallehermoso

Project company

Sociedad Concesionaria Autopista Vespucio Sur

Project company owned by

Acciona (50 per cent) and Sacyr Vallehermoso (50 per cent)

Total project value

US$672m

Total financing

US$506

Tranch one senior bond underwriter

Banco Santander-Chile, Santander Investment Chile Limitada

Tranch one senior bond amount

US$142m

Tranche one financial insurance policy wrap provider

XL Capital Assurance

Tranche two senior loan provider

Instituto de Crédito Oficial de España (ICO)

Tranche two senior loan amount

US$106m

Tranche 3 sale and securitisation of  payment obligations provider

Banco Santander-Chile and Santander Investment Chile Limitada

Tranche 3 sale and securitisation of  payment amount

US$215m

Project equity

US$72m

Concession purchase price

US$64.5m

VAT credit line

US$43m

Arrangers

Banco Santander-Chile, Santander Investment Chile Limitada, Instituto de Crédito Oficial, Banco Santander-Chile

Financial adviser to the project

Banco-Santander Chile, Santander Investment Chile Limitada

Legal adiser to project

Jones Day (New York and Spanish law); Philippi, Yrarrázaval, Pulido & Brunner (Chilean law)

Legal adviser to monoliner

Debevoise & Plimpton (New York law); Claro y Cía. (Chilean law)

Traffic adviser

Vollmer Associates

Insurance adviser

AON Risk Services Chile

Independent engineer

R&Q Ingeniería

Electronic tolling adviser

Carl Bro Group