Alberta Schools P3


As Canada's largest ever schools P3 and Alberta's largest Social Infrastructure P3, the innovative Alberta Schools P3 determinedly closed in the midst of a global financial meltdown and internal concerns.

Despite trying circumstances and difficult credit markets, the landmark agreement pulled together a group of nine lenders and brought back to the market the hybrid bond-bank structure.

This initial schools deal [Projects Database]  - the development of 18 new elementary and junior high schools in the cities of Calgary and Edmonton - stands as a bellwether for future P3 development in the province.

The second phase of the schools P3 programme is being made ready to take to market.


Background

In June 2007 IJ News reported that the Alberta education ministry had announced plans  to select a single private contractor to design, build, finance and operate (DBFO) 18 new schools in Edmonton and Calgary.

By January 2008 the authority issued an RFP to three shortlisted teams:

New Alberta Schools

  • Project Lead: Carillion Canada and Acciona
  • Design Build: Acciona infraestructuras, Clark Builders, Elan Construction, Chandos Construction, Stantec Architecture
  • Maintenance and Renewal: Carillion Canada
  • Financing: Carillion Canada and Acciona

B&B Alberta Schools

  • Project Lead: Babcock & Brown Canada
  • Design Build: Graham Design Builders, Bird Construction, Barr Ryder Architects and Interior Design, GEC Architecture
  • Maintenance and Renewal: Honeywell
  • Financing: Babcock & Brown Canada

Plenary Education Group

  • Project Lead: Plenary Education Alberta
  • Design Build: Stuart Olson Constructors, IBI Group Architects, BPTec-DNW Engineering, Tomecek Roney Little & Associates, Hemisphere Engineering
  • Maintenance and Renewal: Johnson Controls
  • Financing: Plenary Education Alberta

In July 2008 the authority named the B&B consortium its preferred bidder.

The winner - BBPP Alberta Schools Limited - submitted its bid on 4 July, was named preferred bidder on 18 July and reached financial close on 12 September. That was a sum total of just 37 business days from PB to FC.

This made it a lot more comfortable for the lenders because they knew they didn't have to hang out there with commitments for 60, 90 or 120 days.

The lenders were:

  • Sun Life Assurance Company
  • The Manufacturers Life Insurance Company
  • Canada Life
  • Bank of Ireland
  • SMBC
  • National Australia Bank
  • The Toronto-Dominion Bank
  • The Bank of Montreal
  • CIT Financial

The Government of Alberta fastidiously met deadlines and the information between authority and sponsor was good with a high level of probity - often not the case with procuring authorities.

The procurement from the Alberta government was "first rate", according to sources, bringing the project from the drawing board to delivery in a short time.

The authority received most of its advice from in-house sources such as Alberta Justice on the legal side and other Government of Alberta departments.

Davis acted as legal adviser to the sponsor, Altus Helyar provided technical advice, while Intech provided insurance advice. Fasken Martineau was legal adviser to the banks.

There were two model auditors - the indemnity cap the first model auditor provided for the banks was not acceptable, so they got anther one in.

The project reached financial close on 12 September 2008 and is now on schedule to open the 18 schools in September 2010.


The Project

The first P3 schools are:

Calgary Board of Education

  • Saddle Ridge K-4 - 550 pupils
  • Evergreen K-4 - 550 pupils
  • Bridlewood K-6 - 600 pupils
  • Cranston K-4 - 550 pupils
  • Royal Oak K-4 - 550 pupils
  • West Springs K-4 - 550 pupils

Calgary RCS School District

  • Evergreen K-6 - 600 pupils
  • Cranston K-9 - 840 pupils
  • Saddle Ridge K-9 - 840 pupils

Edmonton Catholic School District

  • The Hamptons K-9 - 500 pupils
  • Rutherford East K-9 - 500 pupils
  • Terwillegar Heights K-6 - 500 pupils

Edmonton Public School Board

  • Rutherford West Valley K-9 - 850 pupils
  • Tamarack K-9 - 850 pupils
  • Terwillegar Towne East K-9 - 850 pupils
  • The Lake District (Belle Rive) K-9 - 850 pupils
  • Hollick-Kenyon K-9 - 850 pupils
  • Carlton K-9 - 850 pupils

The standard core school designs will be built to achieve LEED (Leadership in Energy and Environmental Design) Silver certification - an independent rating system used to measure environmental efficiency.

LEED Silver-rated buildings are typically 30 to 45 per cent more energy efficient than conventional buildings and provide healthier environments as a result of improved air quality and use of natural light.

  • project lead - Babcock & Brown Public Partnerships
  • design builder - Graham Design Builders
  • design builder - Bird Design-Build Limited
  • lead architect - Barr Ryder Architects & Interior Designers
  • maintenance and renewal - Honeywell

Babcock & Brown is a minority share holder in Babcock & Brown Public Partnerships, an independent company listed on the London stock exchange.

The delivery of all 18 schools within the 22-months time frame is impressive - it is not uncommon for similar project to take 36 or 48 months to complete.

The areas that will benefit from the new developments are mainly young communities, and it is mainly young families that will get these new schools.

The schools also have modular units that will plug into the core delivery. This means that if the demographics of the area change over time these modular units can be unplugged and relocated to another facility - a process that only takes one week.

It's a fairly homogenous project - the schools look unique from the exterior, but internally are standardised - so there is no disparity between a school in Edmonton or one in Calgary.

The sponsor was innovative in terms of efficient construction and low cost build, as well as advancing early planning, to offer the most competitive bid.

There was also a meltdown in B&B's share price, leading up to bid - providing some pretty grim moments. B&B went from about US$12 per share to an all-time low of US$0.77.


Financing

The total debt amounts to Can$456 million and is made up of four tranches of debt, including bank and bond debt on a short-term and long-term basis.

The four tranches of debt are:

Short tenor bond tranche - Can$40 million

  • The Manufacturers Life Insurance Company - Can$40 million

Long tenor bond tranche - Can$196 million

  • Sun Life Assurance Company Can$100 million
  • Canada Life Can$86 million
  • CIT Financial - Can$10 million

Short term bank tranche - Can$85 million

  • The Toronto-Dominion Bank Can$15 million
  • The Bank of Montreal - Can$25 million
  • Bank of Ireland - Can$15 million
  • SMBC - Can$15 million
  • National Australia Bank - Can$15 million

The short term bank tranche has a tenor of 22 months, which will be repaid when the schools open - remaining in place until completion of construction work.

Long term bank tranche - Can$135 million

  • Bank of Ireland - Can$45 million
  • SMBC - Can$45 million
  • National Australia Bank - Can$45 million

The tenor on long term debt is 30.8 years.

Pricing on the debt is as follows:

  • bank - 140 over CDOR (Canadian Deposit Offering Rate)
  • bond - 190 over GoCs (Government of Canada bonds)

CIT Financial represented the bond holders and was the arranger for the long-tenor bond.

The Can$30 million equity is being provided as follows:

  • Babcock & Brown Public Partnerships - 75 per cent
  • GVest - an affiliate of Graham Construction - 25 per cent

One of the reasons for going down the bond/bank hybrid route was so there wouldn't be any market flex and to make sure there was the capacity - long-tenor debt had become increasingly hard to come by.

In the current market, the Canadian life insurance companies remain a strong source of capital and they are attracted to these projects.

A source close to the deal told IJ News: "They matched long-term liabilities with long-term assets, so there is a better duration-match than some of the project finance banks. Because of the volatility in inter-bank funding, it's not as easy to borrow inexpensively in the short-end and lend out at attractive margins in the long-end. Borrowing costs in the short-end can be pretty significant right now."

An important issue to the sponsor was that they were able to bid a price to the government that did not have the capacity to be flexed. The sponsors eliminated all syndication risk - through a club deal with nine lenders up front and took out the market flex clause.


Alberta Schools II

In January, the Alberta government announced plans for a second Alberta Schools Alternative Procurement project (ASAP II).

The 14 new schools, to be built in Calgary, Edmonton, Okotoks, Langdon, Spruce Grove and Sherwood Park, will have a focus on innovative design that aligns with the evolving needs of today's learners, as well as the need for flexibility in planning.

The P3 consolidation project will result in the design-build of 14 new schools in the Calgary and Edmonton capital regions using a "made-in-Alberta P3 model".

The RFQ is due in January 2009.

The new schools for the second project are:

Calgary Board of Education

  • Coventry Hills Middle School (5-9) - 900 pupils
  • Northwest Senior High School (10-12) - 1500 pupils
  • Taradale Middle School (5-9) - 900 pupils
  • Panorama Middle School (5-9) - 900 pupils
  • Tuscany Middle School (5-9) - 900 pupils

Calgary RCS School District

  • Copperfield Elementary School (K-6) - 650 pupils

Edmonton Catholic School District

  • Terwillegar High School (10-12) - 700 pupils

Edmonton Public School Board

  • Griesbach School (K-9) - 550 pupils
  • Ellerslie Elementary School (K-9) - 850 pupils
  • The Grange School (K-9) - 850 pupils

Elk Island Catholic

  • High School (9-12) (Sherwood Park) - 1400 pupils

Evergreen Catholic

  • Spruce Grove Regional HS (9-12) - 800 pupils

Foothills School Division

  • Okotoks School (K-9) - 500 pupils

Rocky View School Division

  • Langdon School (K-6) - 450 pupils

Conclusion

In a challenging market, the project sponsor went straight to a club deal, and included bank and bond financing - tapping alternative sources of funding.

The combination of innovation on the modular construction, financial structure and Alberta's enthusiasm for PPP is welcome news in a grim market.

A value for money (VfM) report also demonstrates savings of Can$130 million by going down the P3 route compared to traditional procurement.

With a pipeline of deals coming to market in both Social Infrastructure and Transport sectors, the province of Alberta will continue to be a lucrative market for PPP investors and developers, domestically and internationally.



The project at a glance

Project name Alberta Schools P3 (ASAP I P3)
Location Edmonton and Calgary, Alberta, Canada
Description The DBFM of 18 new schools in Edmonton and Calgary - nine schools in each city
Sponsor BBPP Alberta Schools Limited
Project lead Babcock & Brown Public Partnerships
Design builders
  • Graham Design Builders
  • Bird Design-Build
Maintenance and Renewal Honeywell
Lead architect Barr Ryder Architects & Interior Designers
Project duration
(Including construction)
32 years
Construction stage Started in September 2008
Construction duration 22 months
Total Project Value Can$486 million (US$452.009m)
Total equity Can$30 million (US$27.90179m)
Equity breakdown
  • Babcock & Brown Public Partnerships - 75 per cent - Can$22.5 million (US$20.92634m)
  • GVest - an affiliate of Graham Construction - 25 per cent - Can$7.5 million (US$6.97545m)
Total senior debt Can$456 million (US$424.107m)
Senior debt breakdown
  • Short tenor bond tranche - Can$40 million (US$37.20238m)
    The Manufacturers Life Insurance Company - Can$40 million (US$37.20238m)
  • Long tenor bond tranche - Can$196 million (US$182.292m)
    Sun Life Assurance Company Can$100 million (US$93.00595m)
    Canada Life Can$86 million (US$79.98512m)
    CIT Financial - Can$10 million (US$9.300595m)
  • Short term bank tranche - Can$85 million (US$79.05506m)
    The Toronto-Dominion Bank Can$15 million (US$13.95089m)
    The Bank of Montreal - Can$25 million (US$23.25149m)
    Bank of Ireland - Can$15 million (US$13.95089m)
    SMBC - Can$15 million (US$13.95089m)
    National Australia Bank - Can$15 million (US$13.95089m)
  • Long term bank tranche - Can$135 million (US$125.558m)
    Bank of Ireland - Can$45 million (US$41.85268m)
    SMBC - Can$45 million (US$41.85268m)
    National Australia Bank - Can$45 million (US$41.85268m)
Senior debt pricing
  • Bank - 140 over CDOR (Canadian Deposit Offering Rate)
  • Bond - 190 over GoCs (Government of Canada bonds)
Debt:equity ratio 94:6
Mandated lead arrangers
  • Sun Life Assurance Company
  • The Manufacturers Life Insurance Company
  • Canada Life
  • Bank of Ireland
  • SMBC
  • National Australia Bank
  • The Toronto-Dominion Bank
  • The Bank of Montreal
Financing agent CIT Financial
Legal adviser to sponsor Davis
Technical adviser to sponsor Altus Helyar
Insurance adviser to sponsor Intech
Legal adviser to lenders Fasken Martineau
Legal adviser to government Alberta Justice
Financial adviser to government In-house
Technical adviser to government In-house
Date of financial close 12 September 2008

Snapshots

Transaction Snapshot

Alberta Schools Alternative Procurement I AFP


Financial Close:
12/09/2008
SPV:
BBPP Alberta Schools Limited
Value:
$452.01m USD
Equity:
$27.91m
Debt:
$424.10m
Debt/Equity Ratio:
94:6
Concession Period:
32.00 years
PPP:
Yes
Full Details