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DEAL OF THE YEAR: Project/Infrastructure Financing

Jan 1, 2013

Terminales Portuarios Euroandinos Paita $110m 2037 Bond

The $110 million, 25-year bond issued last April by Peru's Terminales Portuarios Euroandinos (TPE) to fund the upgrade of Puerto de Paita is not only the first cross-border bond with brownfield construction risk in Latin America, it is also the first ever project bond for a port in the region.

In the groundbreaking transaction, the borrower - which won a 30-year concession for the port in 2009 - convinced investors to take the risks with no guarantees or financial guaranty insurance.

TPE raised $110 million from the bond markets in April, following a lengthy discussion with investors. The resulting 2037 bond was priced at par with an 8.125% coupon, to offer about 350 basis points more than Peruvian government risk. The notes are structured with a five-year grace period of interest payment only before the amortization begins.

Goldman Sachs managed the sale for the BB/BB minus rated firm, with Scotiabank as co-manager and financial advisor.

In terms of investors, 35% came from banks, 28% from pension funds, 18% from investment managers and 18% from insurance companies. Peru-based accounts bought 59% of the deal, US investors 23%, and non-Peruvian LatAm buyers 18%.

The project bond is the first with construction, demand and operation risk not to have a guarantee, according to DLA Piper, which represented TPE. The indenture is structured to allow future issuance of pari passu notes, to cover future financing needs during the life of the concession.

Each month, revenues from the port are distributed through an innovative waterfall of accounts for operations and maintenance, additional investments, debt service and construction of the additional stages. The transaction contains financial flexibility given the liquidity reserves and cash trap mechanisms built into the structure, according to Fitch Ratings, with the reserve accounts contributing to offset cashflow shortfalls in periods of distress.

As with other project bond firsts in LatAm in the past few years, bankers say the deal represents a broadening of the capital markets that other issuers can test to meet the region's infrastructure needs.

The $293 million project consists of a new terminal construction phase, costing $131 million, which includes dredging to 13 meters. The concession agreement includes a second phase for $19.3 million and a third one at $19.8 million, with another $123 million expected to be necessary during the life of the concession.

The container port in the northwest of Peru has the second-highest activity in national container movement in the country. Built in 1966, it largely serves Piura, Lambayeque, Cajamarca, San Martín, and Amazonas area. TPE is 50% owned by Portugal's Mota-Engil and 50% by Andino Investment Holdings. LF



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