Using forward purchase bonds to enable infrastructure investment

A11 Bruges

The Belgian government sought to improve mobility around its port district by relieving congestion that delayed tourists and freight
The A11 highway fills one of the a missing link in Belgium’s motorway network. The 12km highway connects the Port of Zeebrugge with the E40 and E34 roads in western Flanders, going between Bruges and Knokke

The A11 highway was estimated to cost c. USD 731M , making it the most expensive motorway in Belgium's history
The government faced difficulty in reducing costs and attracting investors due to an uncertain ROI for investors and concern over whether the Belgian government could raise the necessary capital to complete the project

Via A11 (project company) made its first bond issuance, anchored by Allianz Global Investors (AGI), with the European Investment Bank (EIB) supporting through its project bond credit enhancement program. The two entities committed c. USD 627M to the A11 project
Via A11 issued deferred drawdown project bonds2, maturing after 32 years priced at 4.49%, attaining costs savings by reducing its cost of carry and allowing it to draw funds as needed during the construction period
By the end of construction, all the debt will be listed on the Luxembourg Stock Exchange

Via A11 – PPP project company, owned by Via Brugge (61 per cent) and Via-Invest (39 per cent) that issued the project bonds
Via Brugge – Private consortium comprised of Jan de Nul, DG Infra+, along with local contractors Aswebo, Franki Construct, Aclagro and Van Laere.
Via-Invest – Government entity comprised of the AWV (Belgian Roads and Traffic Administrator) and Flemish investment company PMV (Partcipation Company Flanders)
European Investment Bank – Anchor investor in bond issuance

Use of the EIB project bond credit enhancement instrument provided an additional USD 124M1 of credit (equivalent to 20% of senior debt), improving the senior debt rating by 3 notches to A3 from Baa3
The Belgian Roads and Traffic Administrator (AWV) estimates that over 3M vehicles per year will use the A11, reducing congestion and growing the tourist industry on the West Flanders coast
Since A11's financial close, institutional investors such as the Pension Insurance Corporation in the UK have successfully adopted the project bond model utilized by AGI and the EIB

Deferred drawdown structures offer substantial benefits to the SPV by matching issuance with the project's financing needs. This reduces negative carry in the scenario that debt is not used but has been paid for
While project bond issuance can be an effective financing tool for governments, its use is more challenging without sophisticated debt markets, the ability to attain attractive ratings and strong institutional investor interest
Using credit enhancement mechanisms, IFIs such as the EIB can reduce the borrowing costs for sponsors and subsequently improve the bankability of infrastructure projects – a key issue remains the extent to which the IFI community can rapidly and sustainably scale the availability of contingent risk instruments