Hedging advice for the Rijkswaterstaat A16 road project
Case studies

Hedging advice for the Rijkswaterstaat A16 road project

  • A EUR1bn project to strengthen an embankment, build new lock gates and install new drainage pumps along an iconic 32km causeway which connects North Holland to Friesland. The project had three bidding consortia submitting Best and Final Offer (BAFO) funding solutions. Each consortia’s BAFO financial model involved debt, either on an institutional or commercial bank basis plus lending from the EIB.
  • Our objective in this project was to ensure bidding consortia priced their respective hedging inputs consistently and correctly.
  • JCRA’s role at the pre-preferred bidder stage was to ensure each bidder was pricing its inputs and debt structure correctly whilst also assessing other aspects of the proposed funding solution. Four international banks provided the total debt with only three of these four providers swapping the floating rate debt for fixed rates at FC.
Our Approach
  • Once we had established the relevant debt profile, JCRA worked with the individual consortia lenders’ to ensure the basis for the pricing was ‘at market’ on a pre-defined static yield curve, thereby enabling each submission to be compared on a like for like basis.
  • Market pricing, execution spreads, credit and undisclosed margins were also ascertained.
  • The consortia were also asked to agree in principal the execution protocol to be used at financial close plus proposed hedge execution strategies and costs to be used should their submission be successful.
  • JCRA ensured that no errors were made in any of the bid submissions’ hedge pricing.
  • By benchmarking each of the bidder’s financing solutions at the pre-PB stage, JCRA was able to negotiate competitive pricing for the execution and credit spreads applicable to the swap(s) well in advance of FC and whilst there was still competition to be mandated for the concession.
  • JCRA coordinated the execution process at FC. Prior to FC, JCRA, along with the relevant public authority and winning consortia banks, conducted a series of dry-run exercises to provide transparency to the parties involved, and ensure pre-agreed pricing was maintained.

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