How to finance Peruvian PPP without federal backing

Author: | Published: 18 Jul 2012
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Lima’s first municipality-backed public-private partnership (PPP) toll road project closed despite significant construction risk and no federal government guarantee.

The Vía Parque Rímac Project reached agreement with the new Municipalidad Metropolitana de Lima halfway through closing, which occurred on June 28. The financing package is thought to foreshadow future Peruvian projects, both in municipal backing and complexity.

Financing included a S/217.4 million ($82 million) credit facility from Banco de Crédito del Perú and Banco Internacional del Perú (Interbank) alongside a dual-series note offering valued at S/1.12 billion.

Series A notes totaled S/317 million and were predominantly sold to local pension funds, while the S/807 million inflation-adjusted Series B notes were purchased primarily by insurance companies.

Payments will be made to noteholders on a rolling basis upon the achievement of construction milestones before maturing in 2037.

"You have to measure the appetite of investors (insurance companies, pension funds and commercial banks)," Rubio Leguía Normand partner and arranger’s counsel Oscar Arrús said.

"That makes it very difficult because you have to search for potential noteholders and banks that want to give loans, but at the same time the different sets of debt have different market standards, thus making intercreditor matters crucial," he added.

Intercreditor issues were ultimately solved through the use of a cash flow trust funded by existing and future toll payments, and overseen by Citigroup. The project adds to existing infrastructure, so revenue from operating toll roads will be passed on to the project’s concessionaire, Línea Amarilla, in approximately one year.

Juan Carlos De Los, partner at Estudio Echecopar, advised Linea Amarilla and its parent sponsor, Invepar. He said the cash flow trust has a sophisticated waterfall and accounts structure.

"It receives the disbursement of the loans and notes, as well as the capital contributions from sponsors, and manages the accounts and the money throughout the construction process," De Los Heros said. "During the operation of the project, it will receive all of the tolls in order to pay the debt service and operation expenses and costs."

The concession was acquired by Invepar from its original sponsor, Constructora OAS, in March, so investors had to be convinced of the project’s security.

Línea Amarilla obtained a $571.2 million loan from OAS Investments along with an all-cash equity contribution of $88 million from Constructora OAS in December 2010. The project was refinanced under Invepar in accordance with the above terms.


Concession rights to tolls serves as security to both lenders and noteholders, and completion of the project and realisation of toll road concessions is ensured by a Línea Amarilla commitment to pay up to S/949.1 million in equity.

Deal counsel emphasised the lack of a federal guarantee in this project as the beginning of a trend – more municipal involvement but greater emphasis on giving investors security in absence of federal backing.

Risk allocation

Referring to the lack of a federal guarantee, De Los Heros said: "That required a different risk assessment if you compare it to similar transactions in the country."

"As a brownfield project, there is already infrastructure in place and tolls being charged. The creditors will receive the tolls even if for any reason the project is not finalised," Oscar Trelles de Belaunde, another attorney with Estudio Echecopar, said. "The creditors will receive interest payments until completion and thereafter they will receive principal and interest payments."

Linea Amarilla and Invepar were represented by Estudio Echecopar in Peru and Davis Polk & Wardell in New York. BNP Paribas, as arranger, was counseled by Rubio Leguía Normand in Peru and Mayer Brown in New York. Miranda & Amado and SNR Denton acted for Citibank Del Perú & Citibank.