AssessthepossiblesaleasdiscussedbytheACBoardofDirectorsonMay15,2009andconsiderhowyouwouldnegotiateapossiblepriceatwhichtoselltheprojecttoanewoperator.Whenansweringthisquestion,considerthepricerequiredbycurrentshareholders.AlsoconsiderthepricethenewoperatorwouldbewillingtopayunderthepossibilitiesforcreatingvalueinthecompanyasoutlinedbyMartnez.

Clarificationtothecasetext:Thenotesprovidedonpage117ofthecasearenotcorrectlynumberedwithinthetext.Note1ofpage117referstoTable2Expropriations2.Note2referstoTable3VATCredit3.Note3referstoTable3Total.Note5referstothetextfollowingTable6onpage115,i.e.Asofthesecondyearofoperation(2008)theDSCRhastobeover1.1.Note6referstothetextfollowingTable6onpage115,i.e....andthereturnduetotheshareholders(theIRRoftheshareholdersFCF)was8.09percent.2.

For the exclusive use of V. Nikolov, 2015. Exhibit 1: Historical Economic Information about Spain Figures in Percentages Year GrowthGDPRate UnemploymentRate InflationRate InterestRate 2002 2.7% 11.3% 3.6% 2.75% 2003 3.0% 11.1% 3.1% 2.0% 2004 3.2% 10.6% 3.1% 2.0% 2005 3.5% 9.2% 3.4% 2.3% 2006 4.0% 9.8% 3.6% 3.5% 2007 3.6% 8.4% 2.8% 4.0% 2008 0.9% 11.4% 4.1% 2.5% 2009 3.7% 18.0% 0.2% 3.0% SourceBoletinEconomico/06/Dic/Fich/indica.pdf: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/InformesBoletinesRevistas/ Exhibit 2: Forecast Schedule of Investments and Depreciation for Autopistas del Centro Figures in euros Years Capex Evolution (Figures in euros) 2004 Capitalized initial expenses 1,260,528 Expropriations 4,366,033 Earth moving, demolition, etc. Infrastructures Signage, etc. Replacement of services Misc., provl. dev., health and safety Installations to traffic control Control and vigilance 2005 2006 2007 2008 2009 2010 2011 2012 2013 17,825,236 26,252,632 3,693,558 2,187,517 1,609,409 1,804,260 1,122,000 Total Capex excluding VAT Supported VAT Recovering of VAT 5,626,561 44,077,868 7,490,484 2,926,260 900,250 7,052,459 -900,250 1,198,477 -7,052,459 -1,198,477 Total Capex including VAT Years Expected Depreciation Depreciation for init. exp. and expr. Depreciation for earth mov. and infr. Depreciation for signage and repl. serv. 6,526,811 2004 50,230,077 2005 1,125,312 1,636,502 2006 1,125,312 1,727,783 2007 1,125,312 881,557 881,557 453,639 0 0 0 0 0 0 0 0 0 0 0 2008 1,125,312 2009 1,125,312 881,557 453,639 2010 2011 2012 2013 1,125,312 2,006,870 2,460,509 0 0 0 0 881,557 453,639 881,557 453,639 881,557 453,639 881,557 453,639 881,557 453,639 132,294 Depreciation for installation and control Total Depreciation Expenses 0 132,294 132,294 132,294 132,294 132,294 2,592,803 2,592,803 1,467,490 1,467,490 1,467,490 1,467,490 Exhibit 2: continued Figures in euros Supported VAT Recovering of VAT Total Capex including VAT 0 Years 2014 Expected Depreciation Depreciation for init. exp. and expr. 0 2015 0 2016 0 2017 0 2018 0 2019 0 2020 0 2021 0 2022 0 2023 0 2024 0 2025 0 2026 0 0 0 0 0 0 0 0 0 0 0 0 0 Depreciation for earth mov. and infr. 881,557 881,557 881,557 881,557 881,557 881,557 881,557 881,557 881,557 881,557 881,557 881,557 881,557 Depreciation for signage and repl. serv. 453,639 453,639 453,639 292,698 292,698 292,698 292,698 292,698 292,698 292,698 292,698 292,698 292,698 Depreciation for installation and control 132,294 132,294 132,294 132,294 132,294 132,294 132,294 132,294 132,294 132,294 132,294 32,057 32,057 ### ### ### ### ### ### ### ### ### ### ### ### ### Total Depreciation Expenses For the exclusive use of V. Nikolov, 2015. Exhibit 3: Expected Schedule of the FCF Associated with the Project FiguresEXHIBIT 3in euros Years 2004 2005 2006 2007 2008 2009 Revenues 2,479,476 5,209,838 5,472,505 Personnel expenses 310,483 612,671 635,952 External services and other expenses 20,384 39,913 41,110 Maintenance expenses 162,572 318,327 327,877 Total operatinonal expenses (excluding Taxes) 493,439 970,911 1,004,940 Taxes on operations (IAE) 32,800 32,800 32,800 Total operational expenses 526,239 1,003,711 1,037,740 EBITDA 1,953,237 4,206,128 4,434,765 Depreciation expenses ### ### ### ### ### EBIT ### ### -507,271 1,613,325 1,841,962 Taxes 0 0 0 0 0 EBIaT ### ### -507,271 1,613,325 1,841,962 Depreciation 1,125,312 2,006,870 2,460,509 2,592,803 2,592,803 FCF from operations 0 0 1,953,237 4,206,128 4,434,765 FCF from Capex -6,526,811 -50,230,077### ### 0 0 Total FCF -6,526,811 -50,230,077### 225,455 4,206,128 4,434,765 Years 2015 2016 2017 2018 2019 2020 2021 Revenues 8,721,594 9,155,216 9,562,081 ### ### ### ### Personnel expenses 795,442 825,669 857,044 889,612 923,417 958,507 994,930 External services and other expenses 49,088 50,560 52,077 53,640 55,249 56,906 58,613 Maintenance expenses 391,502 403,248 415,345 427,805 440,639 453,859 467,474 T. Operational Expenses 1,236,032 1,279,477 1,324,466 1,371,057 1,419,305 1,469,272 1,521,018 (exc. Taxes) Taxes on operations (IAE) 32,800 32,800 32,800 32,800 32,800 32,800 32,800 Total operational expenses 1,268,832 1,312,277 1,357,266 1,403,857 1,452,105 1,502,072 1,553,818 EBITDA 7,452,762 7,842,939 8,204,815 8,608,606 9,032,124 9,504,146 9,942,177 Depreciation expenses ### ### ### ### ### ### ### EBIT 5,985,271 6,375,449 6,898,265 7,302,057 7,725,575 8,197,597 8,635,628 Taxes 0 0 -913,818 ### ### ### ### EBIaT 5,985,271 6,375,449 5,984,447 4,746,337 5,021,624 5,328,438 5,613,158 Depreciation 1,467,490 1,467,490 1,306,549 1,306,549 1,306,549 1,306,549 1,306,549 FCF from operations 7,452,762 7,842,939 7,290,997 6,052,886 6,328,173 6,634,987 6,919,708 FCF from Capex 0 0 0 0 0 0 0 Total FCF 7,452,762 7,842,939 7,290,997 6,052,886 6,328,173 6,634,987 6,919,708 Source: Initial Business Plan (estimates) 2010 5,764,072 660,118 42,344 337,713 1,040,175 32,800 1,072,975 4,691,096 ### 3,223,606 0 3,223,606 1,467,490 4,691,096 0 4,691,096 2022 ### 1,032,738 60,372 481,499 1,574,608 32,800 1,607,408 ### ### 9,124,107 ### 5,930,669 1,306,549 7,237,219 0 7,237,219 2011 6,071,018 685,203 43,614 347,845 1,076,662 32,800 1,109,462 4,961,557 ### 3,494,066 0 3,494,066 1,467,490 4,961,557 0 4,961,557 2023 ### 1,071,982 62,183 495,944 1,630,108 32,800 1,662,908 ### ### 9,637,259 ### 6,264,218 1,306,549 7,570,768 0 7,570,768 2012 6,379,719 711,241 44,922 358,280 1,114,443 32,800 1,147,243 5,232,476 ### 3,764,985 0 3,764,985 1,467,490 5,232,476 0 5,232,476 2024 ### 1,112,717 64,048 510,822 1,687,587 32,800 1,720,387 ### ### ### ### 6,635,837 1,306,549 7,942,387 0 7,942,387 2013 6,662,641 738,268 46,270 369,029 1,153,566 32,800 1,186,366 5,476,274 ### 4,008,784 0 4,008,784 1,467,490 5,476,274 0 5,476,274 2025 ### 1,155,000 65,970 526,147 1,747,117 32,800 1,779,917 ### ### ### ### 6,996,245 1,206,313 8,202,558 0 8,202,558 2014 8,329,954 766,322 47,658 380,099 1,194,079 32,800 1,226,879 7,103,075 ### 5,635,584 0 5,635,584 1,467,490 7,103,075 0 7,103,075 2026 ### 1,198,890 67,949 541,931 1,808,770 32,800 1,841,570 ### ### ### ### 7,224,290 1,206,313 8,430,602 ### 27,352,500 Exhibit 4: Forecast Schedule of Debt Servicing Figures in euros Years Total FCF VAT credit Financial expenses (1Subordinated debt t) Financial expenses (1Senior debt t) Financial expenses (1t) New credits/ repayments FCF for shareholders Years Total FCF VAT credit Financial expenses (1-t) 2004 2005 2006 2007 -6,526,811 ### -1,636,502 225,455 0 3,750,000 -3,750,000 0 -187,500 0 ### ### ### 0 -1,500,000 -1,500,000 ### ### ### -1,560,413 -2,700,000 0 ### ### 750,000 -6,526,811 -5,473,190 6,608,697 -3,224,545 2015 2016 2017 2018 2019 7,452,762 7,842,939 7,290,997 6,052,886 6,328,173 2008 2009 2010 2011 2012 2013 2014 4,206,128 4,434,765 4,691,096 4,961,557 5,232,476 5,476,274 7,103,075 ### -1,400,000 ### -2,580,000 -3,000,000 -2,773,872 2020 6,634,987 ### -1,300,000 ### -2,460,000 -3,000,000 -2,325,235 2021 6,919,708 ### -1,200,000 ### -2,340,000 -3,000,000 -1,848,904 2022 7,237,219 ### -1,100,000 ### -2,220,000 -3,000,000 -1,358,443 2023 7,570,768 9,000,000 -1,000,000 ### -2,100,000 -3,000,000 -867,524 2024 7,942,387 8,000,000 -900,000 ### -1,980,000 -3,000,000 -403,726 2025 8,202,558 7,000,000 -800,000 ### -1,860,000 -3,000,000 1,443,075 2026 ### Subordinated debt 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 0 0 0 0 0 Financial expenses (1-700,000 -600,000 -433,765 -260,000 -195,000 -130,000 -65,000 0 0 0 0 0 Senior debt ### ### ### ### ### ### ### ### ### 9,000,000 7,000,000 0 t) Financial expenses (1- -1,740,000 -1,620,000 -1,301,294 -897,000 -819,000 -741,000 -663,000 -585,000 -507,000 -429,000 -351,000 -273,000 t) New credits/ -3,000,000 -3,000,000 -3,000,000 -3,000,000 -3,000,000 -3,000,000 -3,000,000 -2,000,000 -2,000,000 -2,000,000 -2,000,000 -7,000,000 FCF for shareholders 2,012,762 2,622,939 2,555,938 1,895,886 2,314,173 2,763,987 3,191,708 4,652,219 5,063,768 5,513,387 5,851,558 ### repayments Exhibit 5: Expected Schedule of the Project's FCF and FCF to Shareholders in the Revised Business Plan Figures in euros 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 -6,526,811 -50,230,077 -1,636,502 225,455 3,580,947 3,887,515 4,345,252 4,718,716 5,104,882 5,476,274 7,103,075 15,000,000 15,000,000 14,000,000 13,000,000 12,000,000 11,000,000 10,000,000 9,000,000 8,000,000 7,000,000 0 -1,500,000 -1,500,000 -1,400,000 -1,300,000 -1,200,000 -1,100,000 -1,000,000 -900,000 -800,000 Years FCF total VAT credit 0 Financial expenses (1-t) 0 Subordinated debt 0 Financial expenses (1-t) Senior debt FCF total VAT credit Financial expenses (1-t) Subordinated debt Financial expenses (1-t) Senior debt -187,500 26,006,887 45,000,000 43,000,000 41,000,000 39,000,000 37,000,000 35,000,000 33,000,000 31,000,000 29,000,000 Financial expenses (1-t) New credits/ repayments FCF for shareholders Years 3,750,000 -3,750,000 -1,560,413 -2,700,000 -2,580,000 -2,460,000 -2,340,000 -2,220,000 -2,100,000 -1,980,000 -1,860,000 0 -6,526,811 44,756,887 11,493,113 -5,473,190 -3,000,000 -3,000,000 -3,000,000 -3,000,000 6,608,697 -3,224,545 -3,399,053 -2,872,485 -2,194,748 -1,601,284 750,000 -3,000,000 -3,000,000 -3,000,000 -995,118 -403,726 1,443,075 2025 2026 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 7,452,762 7,842,939 8,204,815 6,068,982 6,328,173 6,634,987 6,919,708 7,237,219 7,570,768 7,942,387 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 0 0 0 0 0 -700,000 -600,000 -500,000 -260,882 -195,000 -130,000 -65,000 0 0 0 0 0 9,000,000 7,000,000 0 -429,000 -351,000 -273,000 27,000,000 25,000,000 23,000,000 21,000,000 19,000,000 17,000,000 15,000,000 13,000,000 11,000,000 Financial expenses (1-t) -1,740,000 -1,620,000 -1,500,000 -900,042 -819,000 -741,000 New credits/ repayments FCF for shareholders -3,000,000 -3,000,000 -3,000,000 -3,000,000 -3,000,000 -3,000,000 2,012,762 2,622,939 3,204,815 1,908,058 2,314,173 2,763,987 IRR of FCF for the project = 7.02% IRR of FCF to Shareholders = 7.62% -663,000 -585,000 -507,000 -3,000,000 -2,000,000 -2,000,000 3,191,708 4,652,219 5,063,768 8,202,558 27,352,500 -2,000,000 -2,000,000 -7,000,000 5,513,387 5,851,558 20,079,500 For the exclusive use of V. Nikolov, 2015. Exhibit 6:Estimated Price of the Equity in 2009 to Achieve a Shareholders' Return Similar Figures in euros Years 2004 2005 2006 2007 2008 2009 FCF to shareholders -6,526.811 -5,473,190 6,608,697 -3,224,545 -3,399,053 -2,872,485 TV at 2009 18,789,460 Total FCF to shareholders -6,526,811 IRR -3,399,053 15,916,975 18,789,460 EV -3,224,545 51,000,000 Equity 6,608,697 7.62% Debt -5,473,190 69,789,460 Note: Exhibit 6 shows the theoretical price for which the initial shareholders should sell the company at the end of 2009 to get an economic return of 7.62 percent, which is the modified profitability associated with the revision of the initial business plan, including the drop in revenues of 12 percent and 10 percent in 2008 and 2009. For the exclusive use of V. Nikolov, 2015. NA0266 Project Finance for Autopistas del Centro Francisco J. Lpez Lubin I n late spring 2009, Osvaldo Martnez, Finance Manager (CFO) at Autopistas del Centro (AC), a private company operating a toll road bypass in Madrid, was analyzing with growing concern the drop in revenues and operating earnings the company was experiencing as a result of the reduced traffic on its toll road. In 2008, overall freeway traffic in Spain fell by 12 percent, quite similar to the drop in traffic the company had, and the trend did not suggest any improvement in 2009. Martnez found the decline both surprising and unexpected, as variations in traffic had traditionally been related only marginally to variations in GDP. Moreover, as Figure 1 shows, the drop in toll-road traffic in other countries had been more moderate. Exhibit 1 provides some historical macroeconomic information about Spain. Figure 1: Toll-Road Traffic Data Percent Change in Number of Vehicles from Previous Period PERFORMANCE OF THE MAIN TOLL-ROAD OPERATORS IN EUROPE AND THE USA performance of the main toll-road operators in europe and the usa Data as % Data as 4th Quarter 2008 4th Quarter 2008 2008 1,9 -0,4 -1.1 -2,8 -1,6 -3,0 0,0 -1,0 -1,2 -3,0 -4,1 -4,0 -4,0 -1,3 -3,4 -2,0 -6,6 -8,8 -9,8 -9,5 -12,4 -17,6 ASF Francia Cofiroute Francia Sanef Francia APRR Francia Abertis Espaa Itinere Espaa Cintra Brisa Espaa Portugal 407 Intl EE.EE. Chicago EE.EE. Atlantia Italia SOURCE: citi source: CITI Copyright 2013 by the Case Research Journal and by Francisco J. Lpez Lubin. All rights are reserved to the author and NACRA. 2013 by Francisco J. Lpez Lubin. Contact person: Francisco J. Lpez Lubin, IE Business School, C/ Maria de Molina, 12, 4th floor 28006 Madrid. Spain. fco.lubian@ ie.edu. The case, instructor's manual, and synopsis were anonymously peer reviewed and accepted by the North American Case Research Association (NACRA) for its annual meeting, October 13-15, 2011, San Antonio, Texas. Project Finance for Autopistas del Centro 111 For the exclusive use of V. Nikolov, 2015. Martnez worried about the financial situation of Autopistas del Centro (AC), since the company was not generating enough cash flow to meet all its debt payments, due to the fall in revenues. Martnez summarized the situation in the following terms: Financial institutions want to renegotiate our debts in terms of costs and amortization schedule, but our present shareholders are trying to avoid changes in the debt conditions. In my opinion, the project needs operational and financial improvements to be economically feasible and profitable. I wonder what options AC has to survive in the face of a crisis like this, apart from trying to sell the project to new owners? The Autopistas del Centro Project Autopistas del Centro (AC) was founded in 2004 in Madrid with the purpose of building and operating a toll road under a twenty-year concession from the Spanish central government. The toll road was built as an alternative route to provide a fast exit in the north of Madrid, especially for periods with heavy traffic (i.e., weekends and holidays). Tolls were agreed upon with the Spanish Government in the concession contract. Table 1 summarizes the main features of the project. Table 1: Main Features of the Autopistas del Centro Project General Details Type of Concession Freeway Client: Spanish Central Government 20 Years (construction started in 2005 and operations began in 2007) Term: Shareholder Structure Shareholder Stake % Infrastructure del Futuro 40% Coinfrasa 25% Infravest 35% Basic Technical Characteristics: 23 KM Freeway Basic Construction Details Builder: UTE Infraestucturas del Futuro 30% +Coinfrasa 70% Investment in Civil Engineering Tendered 51,568,352 The AC shareholders were the private companies that either participated in the construction of the freeway (Infraestructuras del Futuro and Coinfrasa) or in its operation (Infravest). Case Research Journal Volume 33 Issue 3 and 4 Summer/Fall 2013 112 For the exclusive use of V. Nikolov, 2015. The forecast of total initial investment was around 60 million euros, broken down as detailed in Table 2 (figures in euros): Table 2: Total Initial Investment Civil Engineering Total Investment Depreciation period (for tax purposes) in years Earth moving, demolition, etc. 17,825,236 50 Infrastructures 26,252,632 50 Signage, etc. 3,693,558 18 Replacement of services 2,187,517 25 Miscellaneous, provisional deviations, health and safety 1,609,409 20 Total civil engineering 51,568,352 Installations for traffic control 1,804,260 18 Control and vigilance 1,122,000 35 Capitalized initial expenses 1,260,528 20 Expropriations2 4,366,033 20 Total Initial Investment in Construction 60,121,172 Source: A C Note: all amounts exclusive of VAT. Initial project finance was obtained through a temporary corporate finance agreement in the form of a credit facility from a pool of banks. This would be converted into project finance at the start of 2009. Somewhat simplified, the project's financial structure was as presented in Table 3: Table 3: Information on the Financial Structure (In millions) Type of Finance Project Finance Financial Institution: Bandinvest SA Structure Percentage Current % Equity 12.00 16% Subordinated Debt 15.00 20% Senior Debt 45.00 59% VAT Credit 3.75 5% 75.753 100% 3 Total Source: Autopistas del Centro (AC) Project Finance for Autopistas del Centro 113 For the exclusive use of V. Nikolov, 2015. This financing was obtained after long negotiations with several banks, based on the figures in the business plan drawn up when the company was founded. This agreement was open for revision in 2009. The Initial Business Plan Osvaldo Martinez took a very active role in the development of the initial business plan, which included an estimate of the operating and financial aspects associated with the plans to build and operate the freeway. Exhibit 2 gives the forecast schedule of the investments and their corresponding depreciation charges. The forecast operating data associated with these investments are summarised by the free cash flow figures over the envisaged time frames, as shown in Exhibit 3. The free cash flows (FCF) associated with the investments in 2026 derived from the liquidation of the project as detailed in Table 4 (figures in euros). Table 4: Projected Value of the Liquidation of the Project Gross book value 2026 60,121,172 Accumulated depreciation 2026 33,915,750 Net book value 2026 26,205,422 Estimated liquidation value 15,000,000 Extraordinary profits -11,205,422 Taxes saved FCF associated with liquidation 3,921,898 18,921,898 Source: AC Table 5 summarizes the information on the costs of financing associated with the project (figures in euros). Table 5: Amount and Costs of the Financing Associated financing VAT credit Cost Subordinate debt Cost Senior debt Cost 3,750,000 5% 15,000,000 10% 45,000,000 6% Source: AC Exhibit 4 gives the expected schedule over time. Case Research Journal Volume 33 Issue 3 and 4 Summer/Fall 2013 114 For the exclusive use of V. Nikolov, 2015. Finally, Table 6 summarizes some points from Exhibits 2, 3, and 4 (figures in rounded billions of euros). Table 6: Some Economic Features of the Autopistas del Centro Business Plan Expected negative FCF in 2004-06: 58.4 billion Expected pay back period: 13 years Expected negative FCF to shareholders (2004-13): 18.3 billion The main covenant in the contracts defining the terms and conditions under which the loans were given stipulated that the average debt service coverage ratio (DSCR) was to remain over 1.5, throughout the life of the project. As of the second year of operation (2008) the DSCR had to be over 1.1 The DSCR is defined as the ratio between the free cash flow and the total debt servicing, including interest and related charges. According to the initial business plan, the theoretical return on the project (the IRR of the FCF) was 7.18 percent, and the return due to the shareholders (the IRR of the shareholders' FCF) was 8.09 percent.2 In 2004 the risk-free interest rate in Spain was around 2.00 percent, and in 2009 the level was 3.00 percent. See also Exhibit 1. The Situation in 2009 In late spring 2009, as CFO of Autopistas del Centro, Martinez was aware of the importance of winding up the initial financing of the investments under circumstances very different from those originally envisaged when construction of the freeway began. As a result of the drop in operating income growing out of the global financial crisis that began in 2007, the project's viability was seriously threatened. Up until 2008 the actual figures for the project's development had been fairly similar to those envisaged in the initial business plan. Although there had been some deviations from the investment plan, overall it had been implemented as anticipated. The main problem began to emerge in 2008, with the 12 percent drop against the initially forecast revenue, and an outlook for the future that anticipated no recovery before 2013. At the beginning of 2009 the initial business plan was modified by factoring in a fall in revenues in line with expectations, as Table 7 shows. Table 7: Revised Business Plan Business plan with changes 2008 2009 2010 2011 2012 Reduction in revenues 12% 10% 6% 4% 2% From 2013 until 2026 projected revenues were assumed to be the same as the initial business plan, and the originally agreed financing would be maintained. Thus the return would fall to 7.02 percent for the project and 7.62 percent for shareholders (see Exhibit 5). This decline in shareholder returns was a consequence of the new capital investments needed to ensure the project's viability, as summarised in the forecast FCF schedule for shareholders. Project Finance for Autopistas del Centro 115 For the exclusive use of V. Nikolov, 2015. Martnez believed that the new situation was basically unsustainable. Now the project would need an additional 2 million, and the current shareholders refused to agree to all the refinancing costs of the project coming out of their pockets. On the other hand, the financial institutions wanted to renegotiate costs and deadlines, due to the project's increased risk. Martnez believed that operational and financial improvements would be needed to keep the project viable while offering at least a minimal return. A Possible Sale Following a proposal Martnez made at a meeting held on May 15, 2009, the AC Board of Directors agreed to begin exploring a sale of the company. As CFO and a member of the Board of Directors, Martnez knew that the initial investors were interested in a reasonable exit for their investment in AC. The Board appointed him to analyze what would be a reasonable price to aim for in negotiating the sale of the company. As the reasonableness of the price would depend on one's perspective (i.e. the seller or the buyer), Martnez decided to begin by establishing the minimum price at which the current shareholders would have to sell the company in late 2009 to achieve the return of 7.62 percent derived from the modified business plan. As Exhibit 6 shows, he calculated that this would mean valuing the company at almost 70 million, as its debt stood at 51 million (subordinated + senior debt in 2009). From the buyer's perspective, whether this price was attractive would depend on the new business plan for the company, a plan which introduced a series of improvements to both operating and financial aspects. After an in-depth analysis of the possibilities for creating value in the company, Martnez summarised this new plan as follows: A. Operational aspects Income would reflect the drop in revenue shown in Table 7 A series of operational improvements would be made, leading to a 10 percent reduction in operating costs in 2010, 5 percent in 2011, and 2 percent between 2012 and the end of the project. Tax rate would be 35 percent, when applicable. B. Financial Aspects The debt would be renegotiated, establishing a ten-year schedule of repayments as of 2012, with two years' grace in 2010 and 2011. The new debt would have better conditions in terms of costs and debt service due to some additional public guarantees that would be available to the owners. These public guarantees came from the Spanish government's Ministry of Industry and were offered because of the public service provided by the freeway. According to these guarantees, in the next five years the Ministry would subsidize AC (if necessary) in order to have a ratio of FCF/total debt service no lower than one. Interest on debt would be set at 6 percent. Case Research Journal Volume 33 Issue 3 and 4 Summer/Fall 2013 116 For the exclusive use of V. Nikolov, 2015. Martinez's Worries As CFO of Autopistas del Centro, Osvaldo Martnez was aware of the difficulty of completing a sale in the prevailing economic climate in Spain (and the rest of the euro area) in late spring 2009. The key challenge would be to find a price that would be reasonable for both parties. If a sale proved impossible, Martnez wondered what other options the company might have in order to survive the crisis. It's going to be difficult to find a solution that makes the present shareholders happy . . . They want to leave the company, but also to minimize losses or avoid them, if possible. Well, it certainly will be difficult, but, at the end of the day, this is what I'm supposed to be paid for! Notes 1 This amount was forecast to compensate the owners of properties expropriated for the construction of the freeway. 2 This amount is a short term credit to finance the Value Added Tax (VAT) generated for the purchases associated with the investments. 3 This 75.75 is the total financing needed. This amount would build up along the first years to finance the total investment (60), the VAT (3.75) and the setting up of the equity (12). 5. According to the initial business plan, in the event of breach of this condition in any given year, a reserve fund would be set aside equal to the amount of cash flow necessary. This fund would be created with additional capital from shareholders. 6. These theoretical returns are based on the assumption of no legal restriction. This means that all the positive FCF to shareholders will be freely distributed, in the form of dividends or any other way to compensate the shareholders (e.g., shares buy back; issue of free new capital; etc.). In Spain there was a legal restriction regarding maintaining a capital reserve ratio that had to be considered. According to this legal restriction, the accumulated losses must not be more than two thirds of the capital over two years. If this happens, the shareholders' FCF may not be freely distributed and will be modified by possible capital infusions to ensure the ratio is maintained. For more information, see http://www. bde.es/webbde/es/estadis/infoest/a1901.pdf. Project Finance for Autopistas del Centro 117 For the exclusive use of V. Nikolov, 2015. Exhibit 1: Historical Economic Information about Spain Figures in Percentages Year GDP Growth Rate Unemployment Rate Inflation Rate Interest Rate 2002 2.7% 11.3% 3.6% 2.75% 2003 3.0% 11.1% 3.1% 2.0% 2004 3.2% 10.6% 3.1% 2.0% 2005 3.5% 9.2% 3.4% 2.3% 2006 4.0% 9.8% 3.6% 3.5% 2007 3.6% 8.4% 2.8% 4.0% 2008 0.9% 11.4% 4.1% 2.5% 2009 3.7% 18.0% 0.2% 3.0% Source: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/InformesBoletinesRevistas/ BoletinEconomico/06/Dic/Fich/indica.pdf Case Research Journal Volume 33 Issue 3 and 4 Summer/Fall 2013 118 2014 2007 1,804,260 2006 3,693,558 2005 17,825,236 1,260,528 2004 5,626,561 44,077,868 Recovering of VAT Project Finance for Autopistas del Centro 119 Signage, etc. Infrastructures Earth moving, demolition, etc. Expropriations Capitalized initial expenses (Figures in euros) Capex Evolution Years Total Depreciation Expenses Depreciation for installation and control Depreciation for signage and repl. serv. Depreciation for earth mov. and infr. Depreciation for init. exp. and expr. Expected Depreciation Years Total Capex including VAT 2016 1,125,312 1,125,312 2005 2004 2017 2,006,870 881,557 1,125,312 2006 1,636,502 -7,052,459 -900,250 50,230,077 6,526,811 2015 7,490,484 1,198,477 7,052,459 2018 2,460,509 453,639 881,557 1,125,312 2007 1,727,783 -1,198,477 2,926,260 900,250 Total Capex excluding VAT Supported VAT 1,122,000 Misc., provl. dev., health and safety Control and vigilance 1,609,409 Replacement of services Installations to traffic control 2,187,517 Signage, etc. 26,252,632 Infrastructures 4,366,033 Expropriations Earth moving, demolition, etc. Capitalized initial expenses (Figures in euros) Capex Evolution Years Figures in euros EXHIBIT 2 2019 2,592,803 132,294 453,639 881,557 1,125,312 2008 0 0 2008 2020 2,592,803 132,294 453,639 881,557 1,125,312 2009 0 0 2009 0 2010 0 0 2010 2021 1,467,490 132,294 453,639 881,557 Exhibit 2: Forecast Schedule of Investments and Depreciation for Autopistas del Centro 2022 1,467,490 132,294 453,639 881,557 0 2011 0 0 2011 2023 1,467,490 132,294 453,639 881,557 0 2012 0 0 2012 2024 1,467,490 132,294 453,639 881,557 0 2013 0 0 2013 2025 2026 For the exclusive use of V. Nikolov, 2015. 120 Recovering of VAT 0 0 132,294 Depreciation for installation and control Source: Initial Business Plan (estimates) 1,467,490 881,557 453,639 1,467,490 132,294 453,639 881,557 0 2015 2014 Depreciation for earth mov. and infr. Total Depreciation Expenses 0 2015 1,467,490 132,294 453,639 881,557 0 2016 0 0 2016 1,125,312 1,125,312 2005 2004 -900,250 50,230,077 6,526,811 0 0 2014 Depreciation for signage and repl. serv. Depreciation for init. exp. and expr. Expected Depreciation Years Total Capex including VAT Recovering of VAT Supported VAT Total Capex excluding VAT Control and vigilance Installations to traffic control Misc., provl. dev., health and safety Replacement of services Signage, etc. Infrastructures Earth moving, demolition, etc. Expropriations Capitalized initial expenses (Figures in euros) Capex Evolution Years Figures in euros Total Depreciation Expenses Depreciation for installation and control Exhibit 2: continued Depreciation for signage and repl. serv. Depreciation for earth mov. and infr. Depreciation for init. exp. and expr. Expected Depreciation Years Total Capex including VAT 1,306,549 132,294 292,698 881,557 0 2017 0 0 2017 2,006,870 881,557 1,125,312 2006 1,636,502 -7,052,459 881,557 1,125,312 2008 0 1,306,549 132,294 292,698 881,557 0 2018 0 0 2018 2,460,509 453,639 1,306,549 132,294 292,698 881,557 0 2019 0 0 2019 2,592,803 132,294 453,639 881,557 1,125,312 2007 1,727,783 -1,198,477 1,306,549 132,294 292,698 881,557 0 2020 0 0 2020 2,592,803 132,294 453,639 881,557 1,125,312 2009 0 1,306,549 132,294 292,698 881,557 0 2021 0 0 2021 1,467,490 132,294 453,639 881,557 0 2010 0 1,306,549 132,294 292,698 881,557 0 2022 0 0 2022 1,467,490 132,294 453,639 881,557 0 2011 0 1,306,549 132,294 292,698 881,557 0 2023 0 0 2023 1,467,490 132,294 453,639 881,557 0 2012 0 1,306,549 132,294 292,698 881,557 0 2024 0 0 2024 1,467,490 132,294 453,639 881,557 0 2013 0 1,206,313 32,057 292,698 881,557 0 2025 0 0 2025 1,206,313 32,057 292,698 881,557 0 2026 0 0 2026 For the exclusive use of V. Nikolov, 2015. Case Research Journal Volume 33 Issue 3 and 4 Summer/Fall 2013 For the exclusive use of V. Nikolov, 2015. Exhibit 3: Expected Schedule of the FCF Associated with the Project EXHIBIT 3 Figures in euros Years 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2,479,476 5,209,838 5,472,505 5,764,072 6,071,018 6,379,719 6,662,641 8,329,954 310,483 612,671 635,952 660,118 685,203 711,241 738,268 766,322 20,384 39,913 41,110 42,344 43,614 44,922 46,270 47,658 Maintenance expenses 162,572 318,327 327,877 337,713 347,845 358,280 369,029 380,099 Total operatinonal expenses (excluding Taxes) 493,439 970,911 1,004,940 1,040,175 1,076,662 1,114,443 1,153,566 1,194,079 32,800 32,800 32,800 32,800 32,800 32,800 32,800 32,800 526,239 1,003,711 1,037,740 1,072,975 1,109,462 1,147,243 1,186,366 1,226,879 1,953,237 4,206,128 4,434,765 4,691,096 4,961,557 5,232,476 5,476,274 7,103,075 Revenues Personnel expenses External services and other expenses Taxes on operations (IAE) Total operational expenses EBITDA Depreciation expenses -1,125,312 -2,006,870 -2,460,509 -2,592,803 -2,592,803 -1,467,490 -1,467,490 -1,467,490 -1,467,490 -1,467,490 EBIT -1,125,312 -2,006,870 Taxes 0 EBIaT 0 -1,125,312 -2,006,870 -507,271 1,613,325 1,841,962 3,223,606 3,494,066 3,764,985 4,008,784 5,635,584 0 0 0 0 0 0 0 0 1,613,325 1,841,962 3,223,606 3,494,066 3,764,985 4,008,784 5,635,584 2,006,870 2,460,509 2,592,803 2,592,803 1,467,490 1,467,490 1,467,490 1,467,490 1,467,490 0 FCF from operations -507,271 1,125,312 Depreciation 0 1,953,237 4,206,128 4,434,765 4,691,096 4,961,557 5,232,476 5,476,274 7,103,075 FCF from Capex -6,526,811 -50,230,077 -1,636,502 -1,727,783 0 0 0 0 0 0 0 Total FCF -6,526,811 -50,230,077 -1,636,502 225,455 4,206,128 4,434,765 4,691,096 4,961,557 5,232,476 5,476,274 7,103,075 2019 2020 2021 2022 2023 2024 2025 2026 Years Revenues Personnel expenses External services and other expenses Maintenance expenses T. Operational Expenses (exc. Taxes) 2015 2016 8,721,594 9,155,216 2017 2018 795,442 825,669 857,044 889,612 923,417 958,507 994,930 1,032,738 1,071,982 1,112,717 1,155,000 1,198,890 49,088 50,560 52,077 53,640 55,249 56,906 58,613 60,372 62,183 64,048 65,970 67,949 391,502 403,248 415,345 427,805 440,639 453,859 467,474 481,499 495,944 510,822 526,147 541,931 9,562,081 10,012,463 10,484,230 11,006,218 11,495,995 12,038,064 12,606,717 13,235,917 13,749,684 14,162,175 1,236,032 1,279,477 1,324,466 1,371,057 1,419,305 1,469,272 1,521,018 1,574,608 1,630,108 1,687,587 1,747,117 1,808,770 Taxes on operations (IAE) 32,800 32,800 32,800 32,800 32,800 32,800 32,800 32,800 32,800 32,800 32,800 32,800 Total operational expenses 1,268,832 1,312,277 1,357,266 1,403,857 1,452,105 1,502,072 1,553,818 1,607,408 1,662,908 1,720,387 1,779,917 1,841,570 EBITDA 7,452,762 7,842,939 8,204,815 8,608,606 9,032,124 9,504,146 9,942,177 10,430,656 10,943,808 11,515,530 11,969,767 12,320,604 Depreciation expenses -1,467,490 -1,467,490 -1,306,549 -1,306,549 -1,306,549 -1,306,549 -1,306,549 -1,306,549 -1,306,549 -1,306,549 -1,206,313 -1,206,313 EBIT 5,985,271 6,375,449 Taxes 0 0 EBIaT 5,985,271 6,375,449 5,984,447 4,746,337 5,021,624 5,328,438 5,613,158 5,930,669 6,264,218 6,635,837 6,996,245 7,224,290 Depreciation 1,467,490 1,467,490 1,306,549 1,306,549 1,306,549 1,306,549 1,306,549 1,306,549 1,306,549 1,306,549 1,206,313 1,206,313 FCF from operations 7,452,762 7,842,939 7,290,997 6,052,886 6,328,173 6,634,987 6,919,708 7,237,219 7,570,768 7,942,387 8,202,558 8,430,602 0 0 0 0 0 0 0 0 0 0 0 18,921,898 7,452,762 7,842,939 7,290,997 6,052,886 6,328,173 6,634,987 6,919,708 7,237,219 7,570,768 7,942,387 8,202,558 27,352,500 FCF from Capex Total FCF 6,898,265 7,302,057 7,725,575 8,197,597 8,635,628 9,124,107 9,637,259 10,208,980 10,763,455 11,114,292 -913,818 -2,555,720 -2,703,951 -2,869,159 -3,022,470 -3,193,437 -3,373,041 -3,573,143 -3,767,209 -3,890,002 Source: Initial Business Plan (estimates) Project Finance for Autopistas del Centro 121 122 2005 -6,526,811 6,000,000 -3,000,000 -1,740,000 Financial expenses (1-t) Case Research Journal Volume 33 Issue 3 and 4 Summer/Fall 2013 FCF for shareholders 2,622,939 -3,000,000 -1,620,000 25,000,000 -600,000 2,555,938 -3,000,000 -1,301,294 23,000,000 -433,765 4,000,000 7,290,997 2017 -5,473,190 1,895,886 -3,000,000 -897,000 21,000,000 -260,000 3,000,000 6,052,886 2018 6,608,697 2007 2,314,173 -3,000,000 -819,000 19,000,000 -195,000 2,000,000 6,328,173 2019 -3,224,545 750,000 -2,700,000 43,000,000 -1,500,000 14,000,000 225,455 2008 2,763,987 -3,000,000 -741,000 17,000,000 -130,000 1,000,000 6,634,987 2020 -2,773,872 -3,000,000 -2,580,000 41,000,000 -1,400,000 13,000,000 4,206,128 2009 3,191,708 -3,000,000 -663,000 15,000,000 -65,000 0 6,919,708 2021 -2,325,235 -3,000,000 -2,460,000 39,000,000 -1,300,000 12,000,000 4,434,765 2010 4,652,219 -2,000,000 -585,000 13,000,000 0 0 7,237,219 2022 -1,848,904 -3,000,000 -2,340,000 37,000,000 -1,200,000 11,000,000 4,691,096 2011 5,063,768 -2,000,000 -507,000 11,000,000 0 0 7,570,768 2023 -1,358,443 -3,000,000 -2,220,000 35,000,000 -1,100,000 10,000,000 4,961,557 2012 5,513,387 -2,000,000 -429,000 9,000,000 0 0 7,942,387 2024 -867,524 -3,000,000 -2,100,000 33,000,000 -1,000,000 9,000,000 5,232,476 2013 5,851,558 -2,000,000 -351,000 7,000,000 0 0 8,202,558 2025 -403,726 -3,000,000 -1,980,000 31,000,000 -900,000 8,000,000 5,476,274 2014 20,079,500 -7,000,000 -273,000 0 0 0 27,352,500 2026 1,443,075 -3,000,000 -1,860,000 29,000,000 -800,000 7,000,000 7,103,075 Note: As stated in the case, as of 2008, and in the years in which the forecast FCF for shareholders is negative, shareholders will need to pay in to a reserve fund. Source: Initial Business Plan (estimates) 2,012,762 New credits/ repayments 27,000,000 Senior debt -700,000 Subordinated debt 5,000,000 7,842,939 7,452,762 Financial expenses (1-t) Financial expenses (1-t) VAT credit Total FCF Years FCF for shareholders 11,493,113 44,756,887 45,000,000 26,006,887 New credits/ repayments -1,500,000 15,000,000 -187,500 -3,750,000 0 15,000,000 0 3,750,000 2006 -1,636,502 -1,560,413 0 0 0 2016 2015 2004 -6,526,811 -50,230,077 Financial expenses (1-t) Senior debt Financial expenses (1-t) Subordinated debt Financial expenses (1-t) VAT credit Total FCF Years Figures in euros EXHIBIT 4 Exhibit 4: Forecast Schedule of Debt Servicing For the exclusive use of V. Nikolov, 2015. -187,500 -3,750,000 -1,500,000 6,000,000 7,452,762 4,345,252 2010 4,718,716 2011 2016 -1,400,000 -1,300,000 -1,200,000 -1,100,000 0 0 7,237,219 2022 -2,194,748 0 0 7,570,768 2023 -1,601,284 Project Finance for Autopistas del Centro 123 IRR of FCF for the project = 7.02% IRR of FCF to Shareholders = 7.62% 2,622,939 -3,000,000 -1,620,000 3,204,815 -3,000,000 -1,500,000 1,908,058 -3,000,000 -900,042 2,314,173 -3,000,000 -819,000 2,763,987 -3,000,000 -741,000 3,191,708 -3,000,000 -663,000 4,652,219 -2,000,000 -585,000 5,063,768 -2,000,000 -507,000 2,012,762 -65,000 0 6,919,708 2021 -2,872,485 -3,000,000 -2,220,000 FCF for shareholders -130,000 1,000,000 6,634,987 2020 -3,399,053 -3,000,000 -2,340,000 -3,000,000 -195,000 2,000,000 6,328,173 2019 -3,224,545 -3,000,000 -2,460,000 New credits/ repayments -260,882 3,000,000 6,068,982 2018 6,608,697 -3,000,000 -2,580,000 -1,740,000 -500,000 4,000,000 8,204,815 2017 -5,473,190 750,000 -2,700,000 Financial expenses (1-t) -600,000 5,000,000 7,842,939 -1,500,000 27,000,000 25,000,000 23,000,000 21,000,000 19,000,000 17,000,000 15,000,000 13,000,000 11,000,000 Financial expenses (1-t) 3,887,515 2009 Senior debt -700,000 Subordinated debt Financial expenses (1-t) VAT credit FCF total -6,526,811 0 44,756,887 11,493,113 Years 3,580,947 2008 -1,000,000 9,000,000 5,104,882 2012 -900,000 8,000,000 5,476,274 2013 -800,000 7,000,000 7,103,075 2014 5,513,387 -2,000,000 -429,000 9,000,000 0 0 7,942,387 2024 -995,118 -3,000,000 -2,100,000 2026 1,443,075 -3,000,000 -1,860,000 -7,000,000 -273,000 0 0 0 5,851,558 20,079,500 -2,000,000 -351,000 7,000,000 0 0 8,202,558 27,352,500 2025 -403,726 -3,000,000 -1,980,000 26,006,887 45,000,000 43,000,000 41,000,000 39,000,000 37,000,000 35,000,000 33,000,000 31,000,000 29,000,000 0 New credits/ repayments FCF for shareholders 225,455 2007 0 15,000,000 15,000,000 14,000,000 13,000,000 12,000,000 11,000,000 10,000,000 0 3,750,000 -1,636,502 0 -6,526,811 -50,230,077 -1,560,413 2015 2006 2005 2004 Financial expenses (1-t) Senior debt Financial expenses (1-t) Subordinated debt Financial expenses (1-t) VAT credit FCF total Years Figures in euros EXHIBIT 5 Exhibit 5: Expected Schedule of the Project's FCF and FCF to Shareholders in the Revised Business Plan For the exclusive use of V. Nikolov, 2015. For the exclusive use of V. Nikolov, 2015. Exhibit 6: Estimated Price of the Equity in 2009 to Achieve a Shareholders' Return Similar to the One in the Revised Business Plan Figures in euros Years 2004 FCF to shareholders 2005 -6,526.811 -5,473,190 TV at 2009 2006 2007 2008 2009 6,608,697 -3,224,545 -3,399,053 -2,872,485 18,789,460 Total FCF to shareholders IRR 51,000,000 Equity 18,789,460 EV 6,608,697 -3,224,545 -3,399,053 15,916,975 7.62% Debt -6,526,811 -5,473,190 69,789,460 Note: Exhibit 6 shows the theoretical price for which the initial shareholders should sell the company at the end of 2009 to get an economic return of 7.62 percent, which is the modified profitability associated with the revision of the initial business plan, including the drop in revenues of 12 percent and 10 percent in 2008 and 2009