SPONSORED ARTICLE
applicable to most concessions and most concession agreements is silent on this point. However, as the government grants infrastructure concessions while taking into consideration the qualifications and financial strength of the spon- soring shareholders, it is generally advisable to obtain the consent of the gov- ernment to pledge the stock of the parent company if the transfer of the stock would result in a change of control of the concessionaire or a change of its operating partner. Nevertheless, there seems to be at this time no unified cri- teria among regulatory agencies regarding the treatment of changes of control. The issue needs to be reviewed on a case-by-case basis.
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PANAMA
non-extension of the chattel mortgage before its termination should be in- cluded as an event of default in the loan agreement or the indenture.
Both real property mortgages and chattel mortgages may cause significant
filing fees. Recording fees are charged on the aggregate principal amount of the secured obligations as stated in the mortgage agreement. In order to min- imise filing fees in cases in which the fair market value of the real property or the chattel property is significantly lower than the principal amount of the se- cured obligations, the mortgage agreement can be drafted to secure only the value of the collateral.
Another issue frequently faced by lenders and concessionaires is the addi-
Significant infrastructure projects are either already being worked or are being considered in Panama
Collection and debt service reserve accounts Pledging collection accounts, capex payment accounts, debt service reserve accounts and other similar accounts is possible in Panama. If the accounts are maintained at a bank in Panama, the security interest must be governed by Panamanian law and can be effected through the execution of a pledge agree- ment and the pledgee’s taking of control of the bank account and its funds. Control of the account is critical for the perfection of the security interest. This is regularly achieved through control provisions in the pledge agreement and by making the bank where the account is located a party to such agree- ment.
Another possible structure is to set up a collateral trust and open the bank
account in the name of the trustee for the benefit of the lenders. If the accounts are not located in Panama, it is advisable that the security interest be governed by the laws of the jurisdiction where the accounts are located.
Real estate and chattel property Real property, both land and improvements, owned by concessionaires can generally be mortgaged to secured lenders. A valid and perfected first priority mortgage can be established on real property by executing a mortgage agree- ment and filing it with the Public Registry. Foreclosure of a real estate mort- gage can be effected solely through judicial proceedings. Consent from the government is generally not required to either create or foreclose a mortgage on real property of the concessionaire if the real property is not considered by applicable laws or the concession agreement to be an essential asset for the operation of the concession. If the property is considered to be an essential asset of the concession, such as the dams, tunnels and powerhouses of hydro- electric plants, the legal framework applicable to most concessions requires consent from the government to create and foreclose a mortgage on those as- sets.
A security interest on machinery, equipment and other movable assets can
be created by way of a chattel mortgage. A valid and perfected first priority chattel mortgage can be established by executing a chattel mortgage agreement and filing it with the Public Registry. As is the case with a mortgage on real property, foreclosure of a chattel mortgage can be effected solely through ju- dicial proceedings, and government consent for the creation and foreclosure of the chattel property would generally be required if the assets are essential to the concession.
Chattel mortgages can only be established for four years, but this period can be extended. When the collateral package includes chattel mortgages, the
However, as mentioned, there are exemptions that apply to borrowers on
specific industries. For instance, loans made by a foreign bank to a Panamanian bank are not subject to withholding.
The payment of additional amounts and gross-up provisions for the benefit
of foreign lenders and note holders is common and enforceable in Panama. To avoid the concessionaire having to pay additional amounts on account of withholding taxes, a structure has been developed to register debt instruments with the Panamanian Superintendence of the Securities Markets and to offer such debt instruments simultaneously on the Panama Stock Exchange and
ENERGY & INFRASTRUCTURE | LATIN AMERICA 2013 77
tion of new assets to, and the release of damaged, depreciated, lost or sold assets from, the mortgage. Mortgage agreements typically provide for periodic reviews for the addition and release of assets.
Material contracts Creating a security interest on contracts is more difficult under Panamanian law. An assignment of a contract under Panamanian law does not create a se- curity interest, but rather effects an outright transfer to the assignee of the rights and obligations of the assignor under the contract. In addition, unless the contract so provides, the consent of the other party to a contract is ex- pressly required for the valid assignment of the contract.
In some transactions, material contracts (such as power purchase agree-
ments) have been assigned subject to conditions (such as a default under the loan agreement or the indenture). However, this conditional assignment may be challenged and even undone in the event of the bankruptcy of the conces- sionaire. For these reasons, where possible, security interests over material con- tracts should be created and perfected under foreign laws that recognise the assignment of a contract as a way of creating a security interest. If a valid and perfected security interest under a foreign law is created on these contracts, Panamanian law should recognise it.
Finally, the legal framework applicable to some concessions requires that
certain material contracts be filed and/or approved by the regulatory agency. In these cases, the creation of a security interest and the assignment of these contracts may require notice and/or approval from the government.
Taxation Under current tax laws and regulations, interest paid by a concessionaire on loans or debt instruments, the proceeds of which are used by the concession- aire in its operations in Panama, is considered Panama-source income and is taxable in Panama. Some concession agreements enacted by special legislation and certain toll-road concession agreements include tax exemptions for interest payments to foreign lenders and foreign note holders. Such is the case with Panama Port’s container terminal and Petaquilla’s copper mine concessions.
However, in the absence of such special exemptions, as a general rule, when
a foreign lender (i.e., a lender that does not have a tax domicile in Panama) lends money to a borrower in Panama, and the borrower is either a taxpayer (i.e., earns Panama-taxable income) or uses the proceeds of the loan for a busi- ness purpose in Panama, any interest paid by the borrower to the foreign lender is deemed to be Panama-source income and is subject to withholding. The borrower must withhold income tax at the applicable rate (which for cor- porations is 25%) on 50% of the interest amount paid to the foreign lender – an effective withholding rate of 12.5%.
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