Garrigues partner Oscar Arrús and Diego Harman speak with Rani Mehta about a $250 million bond issue to finance Peruvian wind farms Parque Eólico Tres Hermanas and Parque Eólico Marcona

How did you win this mandate?

OA: We typically advise the placement agent for the deal, Credit Suisse, which asked us to quote given we have experience on international bond transactions and are well known internationally in these types of transactions and generally in project finance.

Did the fact that this was a co-issuance create any structuring challenges?

OA: There were not Peruvian precedents of this kind and we wanted to make sure everything was well done and well structured. We had to go through the issue with our tax team to make sure there were no negative effects to having it as a co-issue.

How were you able to avoid cross-collateralisation of the wind farms’ assets?

OA: Under the agreements each wind farm has its own independent security package. Each project’s concession agreement provides that the assets that belong to that wind farm can only guarantee the portion of the debt they have received, so there was no cross-guarantee.

What were the benefits of structuring the deal as a co-issuance rather than two separate issuances?

DH: The first benefit is that the size of the issuance can be larger as opposed to having two separate issuances. Second, investors can look at this deal as a portfolio financing as opposed to separating the projects where each would have its own independent financing, which might not be as appealing to investors.

Could this pave the way for more co-issuances by Peruvian issuers in the future?

OA: No, this is a particular case. It opens the case for co-issues but I don’t think this will be a trend. Maybe you could see something similar in other industries, but not as a trend. What we have done in the past is establish an SPV when two companies want to issue at the same time. So maybe for some cases we’ll avoid establishing a new SPV.

DH: In this case, the sponsor was awarded two concession agreements with the government, so it’s very particular. In other cases you typically don’t have two power projects close to each other and with similar characteristics.

What were the advantages of structuring this deal as a private placement? 

OA: Private placements are a trend in the Latin American market. Investors want to sit at the table and negotiate directly with issuers, and we are working on a lot of transactions that are structured as private placements. For clients interested in infrastructure this is a way to have a scenario where you don’t have a loan agreement but you have an investor and a structure that is a bond. The issuer has flexibility like a loan agreement but doesn’t have a bank, instead it has an investor which gives more flexibility to the structure.

DH: We see private placements are good for issuers and investors. Usually issuers can save time and money doing private placements as opposed to typical 144 A / Reg S deals and this allows issuers to access long term debt from investors that will be side by side with them during the life of the deal.

Given that this was Allianz Global Investors’ first investment in Peru, did you take any special steps to walk them through the transaction?

OA: We helped on the legal side. You have to provide comfort so they can feel like this is a deal where they can invest. But they have lot of international experience.

DH: Even though this was their first investment in infrastructure debt in Peru it is a highly sophisticated investor. We had to guide them through the infrastructure debt process specifically related to collateral requirements and the way renewable concessions work in Peru because there are underlying concession agreements between each wind farm firm and the Peruvian government for the sale of power.

Were there any other aspects of the transaction that were interesting or challenging?

OA: The whole transaction was very challenging. At first we were talking about a different structure but in the middle of the transaction it was thought a private placement would work much better, and in the end it was.

DH: One thing that made this deal interesting was the was an M&A elemenet that closed simultaneously with the bond issue. Initially these were projects owned by Grupo Cobra (Spain), which
sold 49% to Sigma. Simultaneously to the closing of the private placement, Sigma acquired the remaining 51%, so we had to work with the M&A team in order to make both transactions close. The M&A was a separate transaction but we were working in parallel with Sigma, the sponsor, and Cobra, the selling shareholder. We had to have coherent finance and M&A agreements.

FURTHER INFORMATION

Parque Eólico Tres Hermanas and Parque Eólico Marcona $250 million bond issue

This deal record is from IFLR1000 Deal Data.