Infrastructure Bank of the Year-Brazil: Itaú BBA

Of all the deals that Itaú BBA handled last year, one of the more challenging was the financing of the EDP transmission line project. The BRL1.2 billion ($312 million) project was financed entirely through debentures, the single largest infrastructure debenture in the Brazilian market so far.

The 10-year financing had an uncommonly large balloon payment at the end and was more highly leveraged than traditional deals, according to Marcelo Girão, head of project finance at Itaú BBA. He pointed out that 90% of the project was financed with debt, with 10% equity. The customary ratio is 80/20, he says. EDP’s construction guarantees helped. “It was a very stable project,” says Girão.

What’s more, Itaú BBA used its balance sheet to anchor the issue. It absorbed 90% of the issue and kept the asset on its books before selling pieces on the secondary market, according to Girão.

The transaction was further complicated because of the looming presidential election in Brazil. “There was some uncertainty about who would be the winning candidates,” says Girão. “We bet that things would get better when selling on the secondary market. Fortunately, things are going well.”

Itaú participated in another deal that had its own unique features, the TAG pipeline. The $8.6 billion acquisition of Petrobras’ pipeline was one of the biggest deals and largest divestment by the state-owned company. It was also complex, with dollar- and real-denominated debt.

The deal also faced a legal dispute that challenged Petrobras’ authority to sell a state-owned asset. In the end, the Supreme Court of Brazil ruled in favor of the oil company. More importantly, the ruling allowed the government to proceed with its privatization plans.

“Fortunately, the decision was a correct one from a market perspective,” says Girão. “It was very important transaction to show to the market that future transactions from Petrobras are safe.”