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There are plenty of superlatives attached to Brazil’s $3.2 billion Barracuda and Caratinga oil-drilling project. Almost three years in the making, it is the largest offshore oil and gas project to be funded in the Americas. It also is the biggest ever closed in Brazil’s oil and gas sector. Eric Silverman, a specialist in the power and energy industries who heads the global finance department at New York’s Milbank, Tweed, Hadley & McCloy, was in on it almost from the beginning, maneuvering around obstacles created by investors’ quest for risk insulation, economic turmoil in Brazil, and multiple devaluations of the nation’s currency. Silverman, 46, became involved with the project in spring 1998, when the Brazilian refiner Petrobras held an unwieldy beauty pageant to select a banking consortium to finance the deal, which was still in the planning stages. Silverman was there, along with such British project finance rivals as Allen & Overy, Clifford Chance, and Freshfields Bruckhaus Deringer, vying to be the counsel to the winning bank consortium. At this stage the craft of lawyering took a back seat to the art of diplomacy, Silverman says. “There’s a lot of politics involved in a multibank group about which counsel they would like to work with,” Silverman says. “Obviously, that’s a very sensitive issue. Basically, what it boils down to is that you can’t tick off any bank, because you never know if they will be your client.” Choosing lending and borrowing consortiums took months of wrangling; the process “almost comes down to luck,” Silverman says. Milbank ended up on the winning side for the lenders consortium, which included global banks such as Deutsche Bank AG; HypoVereinsbank; Industrial Bank of Japan, Limited; and BNP Paribas Group. Next came the real work: hammering out a permanent financing package during the devaluation of Brazil’s currency in early 1999, the worst economic period in the nation’s recent history. That setback hindered the lengthy financing process, in which commercial, export, and government lenders each try to structure the deal to their advantage. At that stage, Silverman acted as a consensus-builder, working to ensure that all lenders were treated with parity through intense negotiations with the banks. “You have different perspectives, objectives, and hot buttons for each respective client,” Silverman says. “It involves a lot of diplomacy, as you are constantly trying to forge consensus on issues that are difficult to reconcile. Everyone is out for their interests.” Then Silverman dropped his diplomat’s role and put on his engineer’s hat, going to the site and taking conference calls with the deal’s engineers, technical advisers, and politicians: “I had to understand risks in production, the construction of the plant and types of material to grasp the risk my clients were taking on.” The result was that Silverman and his team of 12 lawyers in New York, Los Angeles, Tokyo, and Washington, D.C., assembled a hybrid financing structure in which political risk insurance — against such things as war, expropriation, foreign-exchange convertibility, and changes in leadership — was used to guard against risks. The Milbank team made sure that, as a protective measure, payments were not tied to oil and gas level production. Negotiation went on right up until the deal closed in June, and the exchange of money between the borrower and the lender is expected to take months. Since conditions of the agreement can unravel as new issues come up, Silverman predicts that lawyering on the now-closed deal could continue for another three years. But Silverman won’t be sitting around waiting for the inevitable urgent phone calls on the Barracuda and Caratinga deal. In project finance, Silverman says, “you always have to look for the next project” — and these days, that means energy-starved California. “Anyone could have predicted this disaster,” says Silverman. But the real question is what Eric Silverman plans to do about it.

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