PANAMA SPONSORED ARTICLE
ABCs of project finance in Panama
Estif Aparicio and Cecilio Castillero of Arias Fábrega & Fábrega (ARIFA), Panama City, review the structure of project finance deals in Panama
Many energy, public infrastructure and other projects have been financed in Panama in recent years. In the energy sector, in 2012 Hydro Caisán issued $130 million in registered bonds for the construction of a 67.2MW run-of- the-river hydroelectric project in the Chiriqui Province of the Republic of Panama. In 2011, Generadora Pedregalito, one of the largest hydroelectric projects developed by Panamanian investors, closed a $60 million public bond issuance in the Panamanian Stock Exchange. Dating back to 2002, Fortuna, Panama’s largest electricity generating company and a subsidiary of Enel, is- sued $170 million 10.13% secured notes due 2013. Similarly, in 2006, its main competitor, AES Panama, issued $300 million 6.35% senior notes due 2016 to refinance existing obligations.
In 2007, AES Changuinola entered into a syndicated loan to finance the
construction of a new 223MW hydroelectric facility. In 2007, Bahía Las Minas Corp, the largest thermal generation company in Panama and a sub- sidiary of Suez Energy, issued $175 million multi-series senior secured notes to finance a coal conversion project. In 2006, Elektra Noreste, the second largest electricity distribution company in the country, issued $100 million 7.6% senior notes due 2021.
In addition, there have been multiple smaller financings for run-of-the-
river hydroelectric projects, such as the $27.5 million registered bond issuance by Generadora Alto Valle, the $22 million loan facility entered into by Hidroeléctrica San Lorenzo, the $7.5 million financing of the Macano hy- droelectric project and the engineering, procurement and construction (EPC) contract with Construtora Norberto Odebrecht for the construction of the Dos Mares hydroelectric project.
Companies operating in other industries have also financed substantial in-
frastructure projects in recent years. In the mining industry, a group of banks led a $45 million prepaid forward gold purchase agreement financing for Petaquilla Minerals, a Canadian-owned mining company established in Panama. In the telecommunications industry, in 2008 Digicel borrowed $170 million to finance the deployment of its new cellular network. In the con- struction industry, the Brazilian construction company Odebrecht financed in 2008 the construction of Panama City’s landmark $183 million coastal highway (Cinta Costera) with a non-recourse collection rights purchase facil- ity, and in 2011 and 2012, Odebrecht financed additional works related to the design and construction of Cinta Costera through non-recourse collection rights purchase facilities totaling more than $500 million. Odebrecht also fi- nanced in 2008 the construction of the $165 million Madden-Colon toll- road with a government-guaranteed syndicated loan to a special purpose construction and operation trust, this loan was increased by $81 million in 2009, and in 2010 and 2011 Odebrecht financed additional works related to the Madden-Colon toll-road through non-recourse collection rights purchase
74 ENERGY & INFRASTRUCTURE | LATIN AMERICA 2013
facilities totaling $90 million. Fomento de Construcciones y Contratas, a Spanish construction company better known as FCC, financed in 2012 the construction of over- and under-passes along Brazil Avenue in Panama City through non-recourse collection rights purchase facilities totaling $207 mil- lion. A consortium formed by Odebrecht and FCC financed a portion of the construction of the first subway line in Panama through a non-recourse col- lection rights purchase facility in the amount of $354 million. In addition, the Republic of Panama financed another portion of the construction of the subway through $362 million syndicated credit facilities guaranteed by CO- FACE and CESCE.
Arias Fábrega & Fábrega acted as counsel to the arrangers, underwriters,
lenders, borrowers or issuers in each of the abovementioned infrastructure projects. Some of these transactions were structured as simple syndicated loans or unsecured senior notes. Others involved complex instruments with highly structured collateral packages.
Non-recourse collection rights purchase facilities As mentioned above, some of the projects were financed through non-recourse collection rights purchase facilities. Under this innovative financing structure, the lenders purchase at a discount credits (collection rights) payable under the construction contract to the contractor by the Panamanian government, which collection rights may be evidenced by documents named partial payment ac- count certificates (cuentas de pago parcial) or, in certain cases, simple invoices. Each partial account payment certificate or invoice states the specific amount payable to the contractor or its assignees as a result of works performed by the contractor and approved by the government during a certain period. The cer- tificates (but not the invoices), once issued, constitute irrevocable payment obligations of the Republic of Panama independent from the construction contract itself. This type of financing has been used for several of the Panama’s most important infrastructure projects.
Concession agreement Most infrastructure projects in Panama are operated under concession agree- ments granted to private companies by the Panamanian government. Gener- ally speaking, concession agreements are of two types: (i) concession agreements enacted by special legislation (contratos-ley) or (ii) ordinary con- cession agreements granted by government agencies under the regulatory framework applicable to the energy, telecommunications, ports, toll-roads, mining and oil industries and the general public concessions law.
The largest infrastructure projects in Panama, such as Texaco’s former re-
finery, Petaquilla’s copper mine, the Balboa, Cristobal and Manzanillo con- tainer ports and the Panama Canal railway have all been awarded under special legislation. The advantage of concession agreements enacted by special legis-
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