Rani Mehta speaks with Stephen Double and Norberto Quintana from Holland & Knight about Stoneway Capital’s $500 million project bond, which was used to fund the development of four simple-cycle power plants in Argentina

How was the firm mandated on this transaction?

Double: We were actually referred to the client by Cabanellas Etchebarne Kelly, a leading Argentine firm that we work with often. 

Is it common for a local firm to refer a global firm?

Double: It depends, especially on the sponsor’s side. If you have a local sponsor that owns equity in the project, it’s often the case that they will look for a recommendation for outside counsel from their lawyers in the country.

In this case there were several firms involved internationally and several firms involved in the local market. We were one of the two US firms with a leading role.

Can you tell me more about your firm’s role on the deal?

Double: We represented the sponsor/issuer, which involved structuring the terms of the deal (including the onshore and offshore security arrangements) with the other transaction parties and their lawyers, preparing the prospectus, coordinating diligence and working closely with the company, banks and their counsel in terms of the bankability of the underlying project documents.

In addition, the financing included two related financing transactions. There was the project bond, on which we advised the issuer and then there was a secured loan transaction with Siemens Financial Services, as lender, to help finance a portion of the sponsor’s equity.

We also advised the sponsor on a separate equity contribution from SoEnergy International, a Floridabased energy company.

Why were project bonds used for the financing?

Quintana: Our client was awarded contracts to develop four thermal power plants. The total investment required to construct the plants was approximately $636 million dollars. Because of Argentina’s complicated
history in terms of its dealings with its creditors, currency regulations, and economic stagnation and inflation, for the most part, commercial banks have been reluctant to finance infrastructure projects in Argentina, at least until now.

While the Macri administration has only been in power for approximately 16 months, it has been vocal in implementing a series of economic reforms that have been well received by the market and we have seen an increased willingness on the part of international financial institutions to get involved in Argentina.

In our experience, having helped a number of Argentine provinces obtain financing over the last year, the most common remedy available for financing in Argentina has been the international capital markets, so that was the structure our client wanted to execute. 

Can you talk more about the challenges presented by this transaction?

Quintana: It is often the case in project finance that it’s easier to place a bond when a project is completed than when a project has to be built from scratch. For these types of greenfield projects it is often the case that you’ll see some form of bank financing. Going straight to a bond financing in a greenfield project is a lot less common given the increased risk to bondholders that a project may not be completed on time or at all and therefore it may not be able to repay its debts. In this case, the bond was placed successfully, so there was sufficient demand for this risk.

It may be the case that investors are seeing an improving regulatory environment in Argentina that mitigates some of the risks associated with financing infrastructure in the country. Additionally, any project financing requires a significant number of structuring decisions along the way, and that in and of itself carries certain complexities. The fact that there were no recent precedents of project bonds in Argentina meant that we had to think through a number of issues related to those type of financings in this country.

For example, working with our colleagues across the table, we were able to overcome some complicated structuring issues related to the onshore and offshore collateral package that satisfied both the underwriters and the onshore and offshore trustees.

Do you think this will pave the way for more project financing with project bonds in Argentina in the future?

Double: That’s certainly our hope. There have been a number of different concessions announced in the past year by the Argentine government for thermal and renewable energy and other projects that will need to be financed. Our hope is that this deal will help move the market towards more opportunities involving project bonds out of Argentina going forward.

Is your firm doing any additional work on the project?

Double: We continue to advise our client on post-closing matters. The construction of the project is well underway and we look forward to celebrating the achievement of commercial operations with our client later this year.

FURTHER INFORMATION

Stoneway Capital’s $500 million project bond

This deal record is from the IFLR1000 Deal Data product.