Local Currency Financing of the Year: EDP Transmissão Aliança

SPONSOR: EDP Brasil
LOCATION: Santa Catarina, Brazil
FINANCING TYPE & SIZE: $312 million project financing
BANK: Itaú BBA
LAW FIRMS: CesconBarrieu, VBSO

Brazil's debenture market has become an increasingly attractive financing alternative for local companies seeking reais-denominated debt. That trend was certainly confirmed last year when EDP Brasil sold BRL1.2 billion ($312 million) in local deben- tures to fund the construction of new transmission lines, part of a plan for the Brazilian unit to double in size by 2020.

EDP Aliança won a concession in April 2017 to build and operate 485km of transmission lines in the state of Santa Catarina.

The most recent issuance was the single largest infrastructure debenture to finance a project in the Brazilian market so far. Fitch gave the debentures an AA(bra) rating on the local scale, citing guarantees from Celesc, which owns 10% of the project, and EDP Brasil, in which Portugal’s EDP holds a 51% share.

Itaú BBA coordinated the sale and priced the 10-year notes at 6.72% over the IPCA consumer price index, putting the cost of capital 3.34% over IPCA after taxes, the energy company said in a statement. The issuance was leveraged at 100% of the project.

EDP finance director Eduardo Masson indicates that the company wanted to match the debt currency to its revenue, and had explored other financing oper- ations.

He points out that the pricing happened just before presidential elections when interest rates began to spike. In the end, he says, the pricing wasn’t as good as the company may have wanted but better than what it might have ended up with.

Masson says EDP initially invited two banks to lead the issuance, but that only complicated discussions. “There were a lot of problems,” according to Masson. At the end of the day, EDP chose to work only with Itaú, figuring that dealing with a single bank would simplify the deal negotiations, given the size of the financing.