Shareholders agrees to TJH’s US$16.1 million call option

Durrant Pate/Contributor

Jamaica’s toll road concessionaire, TransJamaican Highway (TJH) is buying Jamaican Infrastructure Operator, which has been operating and maintaining the ‘Highway 2000 East-West’ toll road leg for the past 19 years.

TJH has executed a transaction agreement with the owners of Jamaican Infrastructure Operator, Bouygues Travaux Publics and Vinci Concessions in which they will each grant a call option to purchase their respective equity interests.

Bouygues Travaux Publics and Vinci Concessions are the original developers of the Highway in which TJH has a 35-year concession for the operation and maintenance of the ‘Highway 2000 East-West’ which stretches from Kingston to Spanish Town through to May Pen in Clarendon and from Kingston to Portmore in St Catherine.

In consideration for the call options to acquire their respective shares in Jamaican Infrastructure Operator, TJH will pay Bouygues and Vinci Concessions an option price equal to an aggregate of US$16.1 million with funds currently in deposit in the distribution account. This option price is separate from the price in which TJH would have to pay for the share equity being sold by Bouygues Travaux Publics and Vinci Concessions

The closing of the grant of the call options and the other transactions contemplated under the Transaction Agreement are subject to the receipt of the consents and the satisfaction of other conditions precedent customary for a transaction of this type.

Consequential changes to O&M agreement

Following the grant of the call options, THJ and the other parties will amend the Operation and Maintenance (O&M) Agreement to amend Jamaican Infrastructure Operator fee structure so that a portion of the fixed fee component is cut by 72 per cent to a lesser extent such that the variable fee component is increased from 3.0 per cent to 5.0 per cent of the theoretical toll revenues and other minor adjustments.

This fixed fee component is the single largest component of the operating cash costs and expenses of TJH, which are calculated as operating expenses plus administrative expenses, excluding amortisation of intangible. The operator fee represented 70.3 per cent, 74.2 per cent and 78.4 per cent of such costs and expenses in 2019, 2020 and 2021, respectively.

Following the implementation of these amendments, Jamaican Infrastructure Operator will share more of the variability of the risk of traffic flow, which is expected to result in a lower overall annual operator’s fee. TJH will revise the calculation and structure of the operator’s fee, resulting in significant annual cost savings to TJH going forward.

The net reduction associated with the new fee calculation formula should represent approximately 50 per cent in average annual costs savings for TJH in 2019, 2020, and 2021 and approximately 58 per cent in 2022. TJH expects that the amendment of operator’s fee will result in a reduction of operating costs, an increase in EBITDA margins, higher debt service coverage ratios.

This is in addition to affording greater protection of the operating margins in less favourable traffic scenarios, all while maintaining the same quality level of operations and maintenance of the Toll Road.

Retaining existing staff

In an effort to ensure a smooth transition and avoid disrupting operations, TJH intends to retain substantially all Jamaican Infrastructure Operator employees that have been managing and performing the operation and maintenance of the toll road for the past 19 years. The proposed changes are expected to allow for overall cost savings and greater operational flexibility for TJH during times of depressed traffic volumes, such as the recent COVID-19 pandemic.

In addition to the agreement for the call option, TJH has launched a related Consent Solicitation for its 5.75 per cent Senior Secured Notes due 2036.

The Proposed Amendments, Waivers and Consents would:

• (i)  amend certain provisions of the 5.75 per cent Senior Secured Notes due 2036 including an amendment that would provide for an increase of the O&M Reserve Required Amount from an amount equal to the sum of expected operation and maintenance costs for a three-month period to an amount equal to the sum of expected operation and maintenance costs for a six-month period;
• (ii)  amend certain provisions of the direct agreement dated as of February 18, 2020, among the TJH, Jamaican Infrastructure Operator, Vinci Concessions, Bouygues, and The Bank of New York Mellon (BNYM) as Offshore Security Agent;
• (iii)  amend certain provisions of an agreement among the Company, BNYM, as Offshore Security Agent, Offshore Account Bank, and Indenture Trustee and JCSD Trustee Services Ltd, as the Onshore Collateral Agent;
• (iv)  in connection with clause (ii) above, terminate the guarantees, dated February 18, 2020, between (a) the Company and Bouygues and (b) the Company and Vinci Concessions, pursuant to which each Operator Shareholder agreed to guarantee to the Company the payment obligations of Jamaican Infrastructure Operator under the O&M Agreement (the ‘Parent Guarantees‘);
• (v)  amend certain provisions of a concession agreement, dated November 21, 2001, between the TJH, as concessionaire and NROCC, as grantor, which amendments will only become effective upon the Company’s receipt of the approval of NROCC on behalf of the Government of Jamaica; and
• (vi)  waive certain requirements and consent to certain actions under the Indenture and the Offshore Security and Accounts Agreement.