Dealmakers:Carlos Viana, Thomas Pate and Lauran Guijarro
The Deal: The White & Case team represented Empresa de Generacion Huallaga S.A. as borrower and parent Odebrecht Energia S.A. as sponsor in the development, construction and project financing of a $1.2 billion hydroelectric power plant in Peru. The deal was signed July 5.
Details: White & Case has long represented Odebrecht, a Brazilian conglomerate specializing in engineering, construction, chemicals and petrochemicals.
The lawyers represented the company in all phases of its plan to build the second tallest concrete-faced rock dam in the world, which will provide 13 percent of Peru’s hydropower when completed.
The plant is under construction on the Huallaga River in central Peru. The project consists of a 400-milliwatt main power plant, a 6-milliwatt auxiliary plant, an 80-mile transmission line, 21 miles of permanent roads and a 600-foot tall dam.
The dam will be a “run-of-the-river” type, which means it will not alter the natural flow of the river but will create a waterfall to generate kinetic energy. Underwater turbines will convert the water’s power into an electromagnetic charge, which will pass through underground tunnels to power plants. “Run-of-the-river” plants are considered more environmentally friendly than those that change a river’s flow.
Peru has experienced tremendous growth in recent years and is one of the fastest-growing economies in Latin America. As a result, demand for infrastructure improvements is high, said Viana, the lead attorney.
He became involved with the project in early 2011. Obtaining financing was a key first step, and not an easy one.
“The project presented a number of technical and geological risks that were unusual for this type of a project,” he said. “Lenders need to be made comfortable with those risks, and special structures need to be put in place to help mitigate those risks.”
Typically, with hydroelectric projects of this magnitude, lenders do not take limited recourse risk before construction. However, they agreed to do so in this case. If the project failed for any reason, the banks would have recourse to recover only from the plant itself and before completion from limited owner commitments.
Among the legal team’s tasks were overseeing the construction documents, purchase agreements, key permits, insurance documents and other commercial agreements. They had to ensure all included terms satisfactory to the international lenders.
The team also had to stay in communication with the Peruvian government because the financing was based on purchase agreements with state-owned electrical distributors.
“The power purchase agreement is the anchor for the financing as it ensures the plant will have a steady flow of revenue once it’s completed,” Viana said.
Ultimately, $774 million of financing was obtained, with the remainder paid by the project owner. Loans were secured through Brazil’s Banco Nacional de Desenvolvimento Econômico e Social, which contributed $340 million; the Inter-American Development Bank, which loaned $334 million; and Deutsche Bank, which contributed $100 million.
The financing structure provides unique features for a project of this type, including limited contingent equity sponsor support and no completion guarantee.
Most of the negotiations were done in Washington because the Inter-American Development Bank is based there and has restrictions on the number of days its bankers can travel outside the area. So the New York bankers, Brazilian bankers and Miami lawyers all met in Washington for marathon sessions.
Sean Goldstein, a partner in the firm’s Mexico City office, oversaw the construction documents. Viana handled all other aspects of the deal with assistance from partners Richard Burke and Ian Cuillerier in Washington, Fernando de la Hoz in Sao Paolo, Brazil, and Richard Horsch and Raymond Simon in New York.
White & Case worked with Odebrecht in-house counsel Ricardo Weyll.
Quote: “Our role was to be involved with all aspects of the development and commercial aspects of the project so as to ensure the financibility of those arrangements due to limited recourse project finance,” said Viana.
Background:Viana is a partner in the Miami office of White & Case. Guijarro and Pate are Miami associates.