Americas $479 million loan and guarantee agreement to the
state of Mato Grosso in west-central Brazil will radically
change Latin American and Brazilian project finance.
The loan, which
matures in 2022, is the first private loan to Brazils
third-largest state. It involved intensive negotiations at the
federal level of government, because Brazilian states were
previously banned from raising capital market debt.
financing arrangement comes ahead of the 2014 World Cup for
which Brazil will serve as host. Interest in the countrys
infrastructure and investment opportunities is likely to soar
in anticipation of the event, which
will take place in 12 cities in Brazil, including Cuiabá
in Mato Grosso.
Advogados Enrico Bentivegna, who advised on the local law
aspects of the deal, said the deal
created a benchmark. Other states will be able to follow
the concepts and standards of the Mato Grosso deal, he
Milbank Tweed Hadley & McCloy partners, Marcelo
Montesi, who advised Bank of America, said there were
overwhelming financial benefits to a deal such as
savings are really significant, he said. We
anticipate a lot more deals like this in coming months and we
think they will go ahead as long as interest rates maintain
their current levels.
The deal will
also enable Brazilian officials at all levels of government to
become more fluent with loan agreements used by the commercial
The loan had to
be structured and presented as something other than a
straightforward loan to Mato Grosso, to navigate the
the deal was born as a pure Mato Grosso loan transaction, with
no guarantee at all from the Republic, and then months later
the Republic stepped in to secure it.
enabled Mato Grosso to pay its debts to the government, tap
other sources of liquidity for infrastructure spending, and
generally have a much better financial profile.
Grosso will be able to make investments in infrastructure and
other fields, Bentivegna said. These investments include
the financing of roads, mass transportation, water treatment
facilities, sanitation, and other areas that visitors and
international observers are sure to notice when the World Cup
comes to Brazil.
Milbank Tweed Hadley & McCloy partner, Jay
Grushkin, elaborated on some of the regulatory issues and the
challenges of closing a deal with which officials had limited
experience. What might seem to some like uncontroversial
language in a loan agreement needed to be explained to
officials who had not dealt with the commercial bank market in
a long time.
challenge was taking a current form of bank loan agreement,
which has evolved a lot in the last 20 to 30 years, and walking
the state government through each provision, said
of America personnel, particularly in Brazil, were very
effective at managing the process on a daily, if not hourly,
basis, he added.
constitutional provision that precludes states from incurring
debt in the capital markets stems from a traumatic period in
the 1980s, when states indebtedness to the federal
government reached crisis point.