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Herbert Smith Freehills advises finance parties on the A465 Heads of the Valleys Welsh Road project

08 December 2020 | UK
Deals and cases

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Herbert Smith Freehills has advised the finance parties on the approximately £550 million A465 "Heads of the Valleys" Road project. This project is the first public-private partnership to be procured under the Welsh Government's Mutual Investment Model. 

Planned to run for 33-years, the project will upgrade a 17.7 kilometre stretch of the A465 carriageway between Dowlais Top and Hirwaun in South Wales.

The preferred bidder on the project was awarded to a consortium comprising Meridiam and FCC, who together hold the majority stake in the project. The Welsh Government holds the remaining minority stake in the project.

The financing arrangements involved multiple debt tranches being provided by a combination of commercial banks and institutional lenders and also addressed the prospect of LIBOR transition. Financial close was achieved on 28 October 2020, in just over 4 months from the announcement of the preferred bidder.

Herbert Smith Freehills' London Finance team was led by partner Matthew Job, supported by partner Helen Beatty, senior associates James Foo and Jo Elson, associates Tom Papworth and Josh Attard and trainee Jess Fechner. Additional support was provided by partner Nick May and associate Alex Leigh on hedging and LIBOR transition, partner Tim Healey on construction, partner Will Arrenberg and senior associate Jane Dodd on tax and partner Nusrat Zar and associate Shameem Ahmad on public law advice.

Matthew Job, partner in Herbert Smith Freehills’ finance practice commented: "The A465 Road PPP project is one of a handful of greenfield project financings anywhere in Europe at present and our involvement in this project as Lender's counsel is a testament to Herbert Smith Freehills' reputation in this sector. To reach financial close in just over 4 months from the announcement of the preferred bidder was a real achievement for our team.  Handling a large lender group through complex negotiations is always a challenge, but it was even more so in this case with the absence of any face to face meetings."

Nick May, partner in Herbert Smith Freehills’ finance practice, added: "LIBOR transition is one of the most significant issues facing the financing markets in 2021 and the potential for mismatches in approach between loans and swaps is a particular issue for highly leveraged businesses that have swapped floating rate interest exposure with the intention of fixing their debt service costs over the duration of a project.  On A465 we worked with the sponsors, lenders and hedging banks to agree a protocol for dealing with the transition from LIBOR to SONIA in a way that minimises the risk of mismatches in order to ensure a smooth process."

The project sponsors Meridiam and FCC were advised by Ashurst and the Welsh Government was advised by DLA Piper. 

Herbert Smith Freehills' role on the A465 project builds on its reputation for advising sponsors and lenders on major greenfield infrastructure projects across Europe, including for example current and recent roles on the Rv.555 and Rv.3/Rv.25 projects in Norway, the Ijmond sea lock PPP in the Netherlands and the D4R7 road PPP in Slovakia.

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