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ACEs are high; Depfa deals a new regulatory capital trick

Two recent deals for funding in the public-private partnership market use innovative structures. Banks and construction companies are starting to find funding advantages as the capital markets warm to project finance assets

Deals: Eiffel 1, FTC corporate securitization;

Essential Public Infrastructure Capital (Epic) collateralized loan obligation

Sizes: e256.5 million; £397.1 million

Arrangers: Deutsche Bank; Merrill Lynch International

Dates: October-November 2004

Europe's two most developed public-private partnership (PPP) programmes produced a brace of innovative capital markets deals at the end of 2004.

Portugal has built more than a third of the 2,850km motorway network planned under its PPP road programme, attracting ?5.7 billion of long-term bank debt. Eiffel enables four Portuguese construction consortia (agrupamentos complementares de empresas ? ACEs) to raise money against the security of revenues from contracts for four of the country's road projects with total expected payments of ?1.293 billion. The main members of all four ACEs are three non-investment-grade construction companies.

The ACEs sell their construction contract payments to the issuer, Eiffel 1. Eiffel 1 issues fund participation units to investors. Each month, the ACEs submit signed invoices for work done to the construction concessionaires. Payments made in return for the invoices go into the issuer's account.

?Eiffel has effectively bought construction cashflows, partly through an upfront payment of ?257 million, and it will pay the remainder as the money passes through,? says Mike Redican, managing director in debt capital markets at Deutsche Bank.

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