THE A28 TOLL MOTORWAY AN INNOVATIVE

APPROACH TO FINANCING
Jean-Yves Goavec
Project Director, Egis Projects
11 Avenue du Centre, 78286 Guyancourt Cedex, France
Tel: +33 1 30 48 47 34, Fax: +33 1 30 48 48 91, Email:
jy.goavec@egisprojects.com

OVERVIEW

Since the early sixties, most of the motorway network in France has been built
under concession schemes. To date, the French motorway network is 9000
km long, of which approximately 7600 km have been granted in concession.
The concession network has been financed, built and is operated by:

Eight Socit dEconomie Mixte Concessionnaires dAutoroutes (SEMCAs

or Mixed Economy Motorway Concession Companies), which are:
-

Autoroutes du Sud de la France (ASF),

Socit des Autoroutes Estrel Cote dAzur, Provence et Alpes

(ESCOTA),

Socit des Autoroutes Paris Rhin Rhne (SAPRR),

Socit des Autoroutes Rhne Alpes (AREA),

Socit des Autoroutes du Nord et de lEst de la France (SANEF),

Socit des Autoroutes Paris Normandie (SAPN),

Autoroutes et Tunnel du Mont Blanc (ATMB), and

Socit Franaise du Tunnel Routier du Frjus (FTRF).

The capital of these companies is held by the State. However, ATMB is an

international company with French, Italian and Swiss interests.

One private company, Companie Financire et Industrielle des Autoroutes

(COFIROUTE).

Until the year 2000, the extension of the motorway network was granted to the
existing concession companies mentioned above and the new motorway
sections were financed by the revenues of the existing ones. This system is
called adossement. For each extension, an amendment to the existing
concession contract was negotiated between the State and the concession
company selected to deal with such extension, providing mainly for increasing
the concession period in order to incorporate and to amortise the additional
section in the overall network operated by the concession company.

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Therefore, the extension of the network did not offer any opportunity to new
candidates to be awarded a concession contract.
European regulations now ban this practice and it is compulsory for the
grantor (the State) to issue a competitive tender in order to select the
concessionaire of new motorway sections.
Thus, it is necessary to find new financial resources for the construction of the
new sections.
In particular, the traffic on the sections to be built now is significantly lower
than on the former sections. Consequently, the financial viability of the new
projects requires a significant financial support from the State, and the amount
of subsidies requested by the candidates in their proposal has become a
major criterion of selection.
Two projects have been awarded recently under these new regulations: the
Viaduc de Millau which has been awarded to Eiffage, and the A28 motorway.
This paper describes the innovative approach in financing the A28 toll
motorway in France within a DBFO scheme.

PROJECT DESCRIPTION

The motorway A28 is a 125 kilometres north-south motorway in Normandy,

connecting the A13 motorway (Paris-Rouen-Caen) in the north, to the existing
A28 motorway in Alenon in the south. The A13 motorway is operated by
SAPN, and the A28 motorway in the south is operated by Cofiroute.
In the north, the A28 motorway through the A29 and A16 motorways will
connect to the industrial centres of Le Havre, Dunkirk, Calais and the Lille
urban area. In the south, through the existing A28 motorway, the facility will be
connected to Alenon, Le Mans, Tours and the South West of France.
The motorway will be part of a motorway link between Calais (connected to
Eurotunnel) and Bayonne (connected to the Iberian peninsula motorway
network), and is also designed as a western bypass to Paris region.
The project covers three Dpartements (Orne, Eure et Calvados), belonging
to two Regions (Basse Normandie and Haute Normandie). The motorway will
pass through the city limits of Ses, Brionne and Bernay, each of which has
between 2,200 and 10,000 inhabitants. Paris is 140 km west of the facility.

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Figure 1: The A28 Motorway An International Link

The motorway will be a controlled-access, dual two-lane carriageway with the

exception of the sections where the motorway will cross Le Bec and La Risle
valleys, where the initial provision will be for a single lane dual carriageway.
The design provides for the construction of viaducts, neither of which is
expected to present unusual technical construction difficulties.
In accordance with the terms of the Concession Contract, when the volume of
traffic increases to a predetermined level or in the event that exceptional
accident levels are recorded, the viaducts will be widened to provide a dual
two-lane carriageway.
The Project extends mostly over flat agricultural land. With the exception of Le
Bec and La Risle river valley, it does not cross any major river or wetlands.
The motorway will include six interchanges, from the North to the South:

A28/A13 interchange,

Brionne interchange,

Bernay interchange,

Orbec interchange,

Gac Interchange, and

A28/ A88 Interchange.

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The main milestones of the project are:

Date

Milestones

October 1999

Pre-qualification

February 2000

Bid submission

August 2000

Preferred Bidder Selection

9 April 2001

Signature of the Concession Contract

2 December 2001

Entering into force of the Concession Contract

28 June 2002

Financial Closing

July 2003

Commencement of construction

December 2005

Opening to traffic

2067

End of Concession

THE CONCESSION COMPANY

The projects sponsors, i.e. Bouygues Construction, CDC Ixis and Egis
created the Concession Company ALIS in 1999. The shareholding of ALIS is
presently as follows:

Bouygues TP and affiliates :

44.84%

CDC Finance CDC IXIS:

26.00%

Egis SA:

Socit des Autoroutes Paris Normandie (SAPN): 8.00%

Uberior Infrastructure Investment Limited :

(Bank of Scotland Group)

8.00%

13.16%

The Concession Company groups together all skills and competencies

necessary to implement the project:

Construction: Bouygues and its affiliates;

Design: Egis through its subsidiary Scetauroute;

Operation and Maintenance: Egis through its subsidiary Transroute

International, and SAPN; and

Financing: CDC IXIS (financial advisor) and Uberior.

CONTRACTUAL STRUCTURE

The scheme below is a simplified summary of the main contractual

relationships between the parties to the Project.

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Figure 2: Simplified Contractual Structure

State & Local
Governments

GRANTOR
The French State

Subsidies
Monoline
Insurer
FSA

Concession Contract

Rating
Agencies

Concession Company
ALIS

A Bonds Holders

Design & Build

Contract

Operation &Maintenance
Contract

Contractor
Bouygues &
Affiliates

Operator:
Routalis
Transroute
& SAPN

A Bonds

Issuer
ALIS Finance

B Bonds
Design Contract

Bank of
Scotland

4.1

Scetauroute
&
Bouygues

Supply of Operation
Equipment

Egis Projects
&
Bouygues
FOE

The Concession Contract

Prior to the tender process, the project followed the regulatory investigation
process managed by the State, and eventually was declared of utilit
publique. The concession contract transfers to the concession company the
rights of the State to implement the project, and particularly with respect to
land acquisition.
The concession contract also determines:

The financial support granted by the public authorities (see below);

The compensation to be paid for termination which leaves sufficient

incentives for the lenders;

The concession period which is 62 years from the opening date; and

The weighted toll rate applicable to the Light Goods Vehicles (LGVs) for
the whole length of the motorway, and the toll rate coefficients to be
applied for each category of vehicle (five in total).

4.2

The Design and Build Contract

The design build contract is a lump sum fixed price contract. It has been
executed between the concession company and a consortium of contractors
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constituted of Bouygues TP and affiliated companies. The design of the

project is subcontracted under a lump sum fixed price contract between the
contractor and a joint venture of Scetauroute (Groupe Egis) and the
contractors. The design and installation of the fixed operating equipment, (i.e.
the toll system, traffic management systems, telecommunication system,
signalling) is provided by a joint venture of Egis Projects, and Bouygues TP
and its affiliates.
4.3

The Operation and Maintenance Contract

The operation and maintenance contract is also a fixed price contract and is
traffic dependent over a traffic threshold. This contract provides for
performances criteria to be met by the Operator, including a bonus and
penalty scheme. It has been executed between the concession company and
Routalis, the operator, a company 70% owned by Transroute International
(Group Egis) and 30% owned by Socit des Autoroutes Paris Normandie
(SAPN).
The Concession Company obligations under the Concession Contract are
transferred back to back to the contractors, their subcontractors and the
operator, as far as they relate to their respective scope of works.
Cost optimization at all levels was a key factor of success in the competitive
bidding. Scetauroute, the designer, and the Operator and its main shareholder
Transroute International, were involved from the early beginning of the project
to contribute to the project optimization. This was achieved in particular in
respect of the toll system which requires limited manpower, being fully
automatic on all interchanges even if all means of payment are accepted. A
single control centre manned 24h/day deals both with safety and traffic
management on the motorway and the operation of the entire automatic toll
system.

TRAFFIC

The traffic study has been implemented by the French consultant ISIS of
Groupe Egis. The traffic study has been audited by the UK firm Steer Davies
Gleave (SDG).
The traffic study provides for the following AADT forecasts:
Vehicle type

2006

2010

Light Vehicle

6,500

7,300

Heavy Vehicle

2,200

2,600

Total

8,700

9,900

Beyond 2020, the traffic projections have been based upon an annual
increase of 2.5% from 2021 to 2030, and 1% thereafter.

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FINANCING PLAN

At the opening to traffic, it is expected that the total cost of the project will be
917 million.

USES
Land Acquisition
Construction Costs

Euro
Million

SOURCES

51.1 Equity & Quasi Equity

668.6 Subsidies

Euro
Million

58.2
331.3

Concessionaire Costs
Reimbursement SAPN

60.4 Subsidies land & bridges

17.6 SAPN Debt

11.9
17.6

Financial Costs

65.7 Mezzanine Debt (B Bonds)

37.5

Reserve account Senior Debt

Reserve Account Mezzanine

32.2 Senior Debt (A Bonds)

8.0

Cash available end construction

10.2

VAT

460.5

3.2

917.0 Total

Total

917.0

The financial close was achieved on June 28, 2002

The Project will be financed by the concession company using:
a)

the equity and quasi equity provided by the shareholders;

b)

the subsidies granted by the Grantor and certain French local authorities;

c)

the proceeds of the issue of the B Bonds;

d)

the proceeds of the issue of the A Bonds (indexed linked bonds)

6.1

The Subsidies

As mentioned above, the financial viability of the project requires significant

support from public authorities. The amount of subsidies and the conditions of
payment have been negotiated during the tender phase and are determined in
the concession contract. The State and French local authorities (Rgions and
Dpartements) committed the following subsidies in January 2000 value for
the financing of the Project:
a)

A lump sum of 303 million to be paid to the Concession Company in

accordance with various milestones related to the progress of the works.

b)

Additional public contributions are also granted if the total land

acquisition cost paid by the Concession Company to third parties
exceeds 35.8 million, in the following conditions:

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c)

from 35.8 million to 53.36 million, additional costs are shared 50/50
between the Sate and local authorities and the Concession
Company; and

Any cost over 53.36 million is publicly funded.

Further contributions are also granted if the number of overpasses

(bridges) or underpasses necessary for the re-establishment of existing
connecting roads is more than 67. The public contribution will be 50% of
the additional costs, subject to a total cap of 4.57 million and a cap per
each underpass or overpass of 0.6 million (all figures in January 2000
value).

To date the estimate of the total subsidies to be contributed by the State and
the French local authorities is 343 million.
The subsidies are generally paid as follows:
State:
Rgion Haute Normandie:
Rgion Basse Normandie:
Dpartment de lEure:
Dpartement du Calvados:
Dpartement de lOrne:
Dpartement de Seine Maritime:

50.00%
12.37%
12.65%
12.37%
2.52%
7.59%
2.52%

The subsidies are paid by instalments from the entering into force of the
concession contract to the opening to traffic. The payment is triggered by the
occurrence of milestones defined in the concession contract, which include
the granting of certain permits and the completion of specific civil works.
The concession contract provides for a revenue sharing mechanism, between
the concession company and the grantor. In consideration of the financial
contribution of the public authorities, the concession company will pay to the
Grantor 9% of the revenues to be increased later on to 18%, when the
cumulative cash flows generated by the project reaches certain thresholds
defined in the concession contract.
6.2

The Mezzanine Debt (B Bonds)

ALIS and the Bank of Scotland (BOS) entered into a B Bond Underwriting
Agreement under which BOS subscribed for a 37.5 million B Bonds to be
issued by ALIS Finance (the issuing entity on behalf of the concession
company).
The B Bonds issue date will take place between 2 June 2005 and 2 December
2005, (anticipated date for opening to traffic), which can be extended up to 2
June 2006.

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Each Class B Bond shall be repaid in instalments every year. The first
instalment shall be in 2008. The last instalment shall be in 2019 (the final
maturity date).
The 17-year maturity mezzanine debt has a fixed and back ended repayment
profile as the credit agreement provides for equal instalment for 50% of the
principal up to 2018 and 50% bullet in 2019.
The B Bonds bear interest on principal amount outstanding. The rate of
interest is the sum of (i) Euribor at the date of payment of the interest and (ii)
the margin. The margin will be 400 bp per annum up to the payment date
falling in 2009 and 450 bp thereafter.
The rights attached to the B Bonds issue are subordinated to those of the
holders of Class A Bonds. Therefore the mezzanine debt provider has a
second rank access to the security package and is fully subordinated to the
senior lenders in the cash flow waterfall.
6.3

The Senior Debt

The innovative aspect of the financial deal lies in the nature of the 460 million
senior debt.
The initial plan was to look at traditional bank debt, but eventually CDC
IXIS elected to issue index-linked bonds for a total amount of 460 million.
The bond issue comprises three tranches with bullet repayment at their
respective maturity:

Tranche 1 for 80 million over 15 years offered at a coupon of 3.99% to

yield 60 bp over the interpolated yield of the 2009 and 2029 OAT (Frances
French inflation indexed-linked government bond);

Tranche 2 for 180 million over 25 years offered at a coupon of 4.25% to

yield 80 bp over the OAT; and

Tranche 3 for 200 million over 30 years offered at a coupon of 4.30% to

yield 85 bp over the OAT.

Hence, the bond issue is attractive for the company as:

(a) the interest rates are quite competitive, and
(b) the back ended repayment fits to the revenues profile.
The 460 million bond issue was wrapped up by Financial Security
Insurance Ltd (FSA), a subsidiary of Dexia Group. As monoline insurer,
FSA provides an unconditional and irrevocable guarantee of coupon and
principal repayment, and bonds are thus rated AAA/Aaa by Standard &
Poors and by Moodys. This is the first index-linked bond issue in the
Eurozone by a non-sovereign entity. The issue was managed by CDC IXIS
Capital Market and fully subscribed, mainly by French investors.
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As a significant award for the sponsors of the project, the A28 toll motorway
project has been elected as the European Transport Deal of the year
2002 by Project Finance Magazine.
The first drawdown on the proceeds of the bonds took place in July 2003,
allowing the effective start of construction.

CONCLUSIONS

The contractual and financial structure of the A28 motorway has been
carefully designed to achieve a balance between the risks and the financial
contributions of each of the parties involved in the Project:

The risks have been adequately allocated between the Grantor, the
concession company, the contractors and the operator.

The innovative financing, albeit complex, particularly fits to the revenues

profile of a toll motorway. It should contribute to the development of the
Euro infrastructure bond market.

It is anticipated that Public Private Partnership projects will develop in

France in a near future. The Ministry of Transport has already launched
requests for qualification for several transportation infrastructure projects,
to be implemented under the BOT scheme. The A28 toll motorway should
constitute a benchmark for PPP projects in France and also in Europe.

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