When in 2010 Macquarie and Eiffage set out to refinance debt at their toll road operator Autoroutes Paris-Rhin-Rhône and holding company Eiffarie, they knew they would be placing a heavy demand for liquidity on the market. But they did not realise just how constrained the bank markets were going to become.

Background and preparation

APRR is the operating company for a 2,282km network of toll roads between Paris and Lyon, principally the A5, A6 and A39 connecting the two cities, under concession until December 2032. In February 2006, APRR was part-privatised by the French state: Eiffarie, the 50:50 joint venture of Macquarie and Eiffage, acquired 70.2 per cent for €6.9 billion (US$8.5bn), in a deal involving €3.8 billion of holding company debt and a €1.8 billion revolving credit facility at APRR. It was arranged by BBVA, Dresdner Kleinwort (now Commerzbank), Natixis, RBS and Société Générale.

Since acquisition, traffic has grown steadily on the network, rising by over one per cent in every quarter last year in contrast to other toll road operating companies in Europe. EBITDA in 2010 totalled €1.326 billion, up 4.8 per cent on 2009.

Eiffarie now owns 98.93 per cent of APRR, having progressively bought out other shareholders. Eiffarie is 50 per cent plus one share owned by Eiffage and 50 per cent minus one share owned by Macquarie Autoroutes de France. Through MAF, Macquarie Atlas Roads holds about 19.4 per cent of APRR and the remaining Macquarie stake is held mainly by MEIF and MEIF 2.

With debt maturing in February 2013, the borrowers began working in the second half of 2010 on a plan to refinance not only the acquisition debt but also APRR’s historic debt. They had an agreement with ratings agencies that APRR’s credit rating (BBB- S&P/Baa3 Moody’s) was dependent on refinancing within one year of maturity. Failure to do so would relegate APRR’s bonds to junk status. Rothschild was appointed financial adviser in October 2010.

Xavier Ombredanne, head of finance and treasury at Eiffage, recalls: “The plan was something we devised during 2010. The beauty of the plan was to slowly build liquidity at APRR to rebalance bank debt to cover APRR’s needs and capex.” This they did: APRR issued its first bonds under the plan in January 2011, a €1 billion six-year bond and a €50 million 10-year inflation-linked bond. In total the company would raise €2.5 billion over 12 months, at an average coupon of about 4.83 per cent, an achievement of which Macquarie and Eiffage are proud. The bonds have a step-up if APRR is downgraded below investment grade.

The wave of bond issuances would allow APRR to issue an upstream dividend to pay down €1 billion of Eiffarie’s debt, reducing the holding company requirement to €2.8 billion. At the same time, it was decided that the revolver at APRR, already reduced to €1.2 billion, could be shrunk by taking out a portion in bonds. Thomas Gelot, senior vice-president at Macquarie Infrastructure and Real Assets, notes: “APRR has a lot of headroom on its covenants and very reasonable leverage”. The total bank debt requirement was thus reduced to €3.5 billion, with the exact split between holding company and operating company not finalised till later on.

In March 2011, having been presented with the plans, Standard & Poor’s removed APRR from negative outlook. The path was clear for a bank market approach. But unforeseeable trouble was in store.

A lack of liquidity

In September 2011, Eiffarie and APRR approached the bank markets, specifying that they were looking for two tiers of lenders arranged by ticket size. It could scarcely be a worse time to ask for three and a half billion euros.

Gelot recalls: “Debt markets started to deteriorate when we commenced formal discussions with banks at the end of the summer, and it got progressively worse over the following months.” Some banks approached ruled themselves out of the deal altogether; others are understood to have stated that their cost of funding was above 400bps. Originally, the borrowers seemed to want to roll over their facilities within the existing group, but in the circumstances, they had to go further and bring in new lenders from outside the Eurozone with better liquidity, such as RBC Capital Markets and Commonwealth Bank of Australia.

“The transaction was never a credit problem,” says one lender recalling how the deal was digested, “given it’s a decent credit but marginal investment grade. It was how much [debt] people are going to hold. People here are holding at €200 [million]-plus… the question was can you get enough people to take that view”.

Initially, Macquarie and Eiffage were understood to be offering margins below 300bps on the €2.8 billion holding company piece. Revised terms went out in November, apparently specifying 275bps on the holding company and 100bps on the operating company, with five-year terms being sought on both. A source following the deal at the time said banks preferred the holding company piece on account of its higher margin; nonetheless, early on banks fed back that both their margins and commitment fees would have to be at least 300bps on the holding company. Negotiations on the term sheet began in earnest that month and banks were asked to go to credit committee and commit in early December.

That deadline was not met, however, and negotiations dragged on through January; one source present at talks recalls countless roundtable discussions and the term sheet  being re-drafted about 10 times, adding: “You had institutions from different regulatory environments; you had Japanese banks, Canadian banks, so getting everyone in was quite challenging. They had to look beyond their usual shores. You had different credit committees and different processes”.

Tough negotiations

Liquidity was not the only issue. Some, though not all lenders, think that Rothschild was too intransigent in negotiating on the borrowers’ behalf. Working with Crédit Agricole was particularly difficult, as relations with Eiffage had been frosty ever since the bank advised on Sacyr’s failed hostile takeover of the contractor. The prevailing view among some is that the deal would have been done quicker if banks had been listened to at the outset, and that on some points the lenders’ views only prevailed after painful wrangling. Gelot, however, is unrepentant: “I’m not sure in the end I would do it differently”.

What issues were contested? At first, Macquarie and Eiffage suggested that the Eiffarie loans should have a step-down if the borrowers leveraged quicker than expected, and a step-up if it happened quicker. This was abandoned. Demands that all banks should take both Eiffarie and APRR debt were dropped, and changes were also made to information provision.

Xavier Ombredanne recalls: “The biggest challenge was the volatility of the banks and the general macroeconomic environment. People just being forced to react very quickly.” Thomas Gelot adds: “The volatility meant that there was a lack of guidance from banks. Like everyone, they were just waiting to see what would happen in the macro environment.”

Meanwhile, APRR continued happily to price bonds. In February, it priced a €500 million six-year bond with a coupon of 5.125 per cent and a spread of 340bps, the lower end of the pricing guidance. “The continued access to the bond market by APRR showed in contrast to the bank market. Notwithstanding the continued and increased volatility of the banks, the bond market was there for APRR, so there was a disconnect,” Ombredanne says.

One bright light during this time was the European Central Bank’s near-€500-billion long-term refinancing operation, in which banks queued up hungrily to borrow three-year debt at one per cent.

Closing the deal

Finally in early February the top tier of bookrunners was in place, taking tickets of about €290 million. They were:

• Bank of Tokyo-Mitsubishi UFJ
• BBVA
• Commonwealth Bank of Australia
• Lloyds
• Natixis
• RBC Capital Markets
• Santander
• Société Générale

By now it became clear that a third, intermediate tier of MLAs would have to be introduced to cater for the appetite of CA CIB and CIC. The lower tier of arrangers, which took a few more days to establish, was made up of:

• Banco Sabadell
• BayernLB
• Caixa Bank
• ING
• KfW
• WestLB

These banks took tickets of roughly €75 million.

The final bank debt structure was a €2.765 billion five-year term loan at Eiffarie level and a €720 billion five-year revolver at APRR.

The term loan was priced at 300bps over Euribor with two 50bps step-ups (full pricing and fee details appear below). The revolver was priced at 150bps. Banks not taking the revolver were BayernLB, CIC, Santander and WestLB.

Financing was signed on 20 February 2012 – the sixth anniversary of debt being signed on the acquisition of APRR and the last possible date to close before the asset was in danger of a downgrade.

Conclusion

Everyone asked agrees that this deal tested the liquidity in the markets to its very limit, and paid appropriate pricing. Max Roche, the head of Eiffage Concessions, has publicly called the Eiffarie facility “expensive”, and lenders do not deny it. With one less bank, or one day’s extra delay, however, APRR could have been downgraded and terms could have shot up. A hair-raising deal, then, and one which all parties seem to have found difficult.

But whatever the turmoil among banks, APRR has proven to have good access to the bond markets. As one lender notes: “I think it’s open for business for the right credit, but you have to start early. They did a very good job in bringing people together. They’ve been quite consistent in their results and they don’t have a huge degree of ancillary business.” Another says: “The capital markets have been demonstrated to be reasonably reliable. The trick is just get your timing right."

Transaction At A Glance