Europe’s largest waste PFI has seen Addleshaws strike up relationships with new clients.
The Greater Manchester waste PFI has been a boon for Addleshaw Goddard, although not in the way the firm might originally have intended.
Addleshaws first came on board in 2007 as adviser to two sole commercial lenders, Bank of Ireland and NIBC Bank, in a project that was intended to be inked within a year.
Even being selected on the deal, which involves the upgrade of 25 recycling facilities using mechanical-biological treatment and construction of a power plant to burn residual waste, was a coup for Addleshaws. It is Europe’s biggest waste PFI project, is worth £3.8bn over 25 years and has a construction programme of £640m – around 85 per cent of which is debt.
But it is not only the size of the project that is of note to Addleshaws. More importantly, the uncertain financial climate into which the UK was subsequently plunged meant that the final line-up of lenders altered substantially, thus allowing the firm to strike up relationships with new clients.
“We’re chuffed with the deal overall,” says lead partner Richard Guit. “It exposed us to a number of new institutions. As a firm we were able to get closer to these banks.”
Addleshaws won the role following its advice to Lancashire waste PFI joint sponsors Bovis Lend Lease and Global Renewables. That project closed in 2007 and was at the time the largest waste PFI in the UK. The lenders were, in fact, Bank of Ireland and NIBC – the same initial line-up as on the Greater Manchester scheme.
A large Manchester office was to Addleshaws’ advantage in trumping the other firms pitching for the Greater Manchester role, although as the project progressed London-based finance partners became more involved.
Greater Manchester is highly complex. There are two different special purpose vehicles – operators Viridor and John Laing in a joint venture advised by Pinsent Masons, and the Ashurst-advised chemicals group Ineos Chlor, which will burn the non-recyclable waste to fuel its factory. So there was a substantial element of ringfencing and interests to be aligned. This took time.
By 2008 it was not looking hopeful that the project would close within the envisaged timeframe because of additional funding concerns.
“The fate of the project was hanging in the balance,” relates Guit. “The existing banking group was looking at increasing its lending, but after a month or two constraints on the banks’ balance sheets meant that they were unable to lend more. Much of the past few months have been about trying to structure the deal to plug that gap.”
“The unit wanted to be treated like commercial lenders,” says Guit. “They had a number of different conGreater Manchester was finally worked out on the basis of a club deal among the commercial lenders, with Bank of Ireland taking a structuring role. It lent £55m plus an additional £40m bridge loan, while BBVA lent £55m, Lloyds TSB £55m and SMBC £40m.
Addleshaws worked with BBVA for the first time, but notably it also struck up new relationships with those that met the funding difference. These included first-time client European Investment Bank, which lent £182m, and the Treasury’s Infrastructure Finance Unit, which provided £120m just days after its creation and on the same terms as commercial lenders.ceptual hurdles because the Government isn’t used to lending, but we’re in a different world now.”
Addleshaws provided initial due diligence, while Linklaters global projects head Bruce White helped set up the entity and advised on documentation.
The lending shortfall was made up by Eversheds client Greater Manchester Waste Disposal Authority (GMWDA), which, in an unusual move for a local authority, put up £35m. The nature of the contract – a single integrated document – means it is unlikely to result in any ongoing work for Eversheds.
“Up to this procurement the GMWDA didn’t have the need for lawyers on a day-to-day basis,” explains Eversheds’ lead partner on the deal Mike Mousdale. “Now this is procured it will go back to the status quo.”
The European Landfill Directive stipulates penalties for landfill and as a result local authorities are under pressure to improve their waste management facilities before penalties are levied from 2012. This is poised to keep projects lawyers busy for the foreseeable future while allowing them to play up their green credentials.
But given that non-recyclable waste will be burnt by Ineos Chlor to run its chemicals plant in Runcorn, thus generating emissions, how green is it? Pinsent Masons head of projects Patrick Twist says any risks involved in emissions generated are overstated.
“Waste-to-energy plants are no more threatening to the public than any other industrial process,” he argues. “They have to comply with rigorous energy standards. If the UK is to meet the landfill directive, it has to have these projects.”
All the firms involved will put the project down on their corporate CVs because of its size and complexity. For Addleshaws in particular it could mark the point at which its projects practice moved on to the next level.
At the end of last year, as his team was scratching its collective head trying to work out how to align the multiple interests on the project, Addleshaws projects chief Mike O’Connor told The Lawyer that the non-European emerging markets were to be highlighted by the firm. Indeed, O’Connor was about to jet off to India on a fact-finding mission.
First stop Manchester, next stop Mumbai?
The Greater Manchester Waste PFI is worth £3.8bn, with £582m of debt provided by six institutions and £58m of equity provided by two separate special purchase vehicles (SPVs), Viridor Laing and Ineos Runcorn.
The project involves the upgrading of 25 household waste recycling centres in Greater Manchester together with the construction of a combined heat and power plant (CHP) in Runcorn to burn residual waste. It is intended to divert 75 per cent of waste away from landfill.
Addleshaw Goddard projects partners Richard Guit and Rhodri Davies and real estate partner Paul Conroy advised commercial lenders Bank of Ireland, Lloyds TSB, BBVA and SMBC, and lenders European Investment Bank (EIB) and Infrastructure Finance Unit.
Ashfords partner Ruth Murray advised Viridor on the acquisition of Greater Manchester Waste, a local authority waste disposal company, from GMWRA.
Ashurst energy, transport and infrastructure partners Patrick Boyle, Lee McDonald, Cameron Smith, Louise Ecclestone and Philip Thomson, assisted by partners Martin Wright, Alexander Cox and Matthew Hall, advised SPV chemicals group Ineos Runcorn/Ineos Chlor.
Burges Salmon projects partner Will Gard advised principal contractor Costain.
Clifford Chance finance partner David Bickerton advised EIB.
Eversheds projects partner Mike Mousdale, banking partner Geraint Thomas and corporate partner Edward Pisden advised Greater Manchester Waste Disposal Authority.
Linklaters partner Bruce White advised the Government’s Infrastructure Finance Unit.
Lovells project finance partner Jeremy Brittenden advised CHP developer Keppel Seghers.
Pinsent Masons projects partner Patrick Twist, assisted by partners Kate Orviss, Merle Wray, Chris Hallam and Nigel Blundell, advised Viridor Laing (Greater Manchester).