This content is from: Local Insights

Novel trust structures in Peruvian project finance

José Francisco Meier
Traditionally, Peruvian project finance structures have used trusts (fideicomisos) either as passive collateral trusts or cash-flow trusts, to serve as collateral and/or debt service payment mechanisms.

Approximately 10 years ago, Peruvian trusts began to be used in a unique manner in project financing structures involving payment certificates for advancement of works issued by the Peruvian government (such as CRPAOs or CR-RPIs). In these structures, the referenced certificates were conveyed by the project developer to a special purpose vehicle, which would securitise or use such certificates as collateral for international securities issuances. In these transactions, payments under such certificates were made through trust structures, which additionally included a private registry of certificate holders to ensure payments were properly made to the applicable certificate holder.

More recently, financing structures have been designed in order to: (i) use trusts as vehicles that act as recipients of proceeds from credit facilities; (ii) have the trust use loan proceeds to purchase debt securities, payment certificates or payment rights under the project (as applicable, depending on the applicable project structure, concession agreement and/or PPA) from the project developer (at a discount); and (iii) have the trust pay off the loans under the credit facilities using the cash flows received under such debt securities, payment certificates or payment rights. A similar structure was used for the recent Peruvian project financing of the La Chira Wastewater Treatment Plant, in which a trust was incorporated to purchase irrevocable payment rights granted by Lima's water utility agency to the project developer, using funds disbursed to the trust under a credit facility granted by a local bank.

Further interesting trust structures are expected to be developed in Peruvian structured finance transactions, under which trusts would issue securitised bonds representing underlying assets or collection rights. The Peruvian Securities Market Law formerly provided that the use of such securitisation trusts' assets had to be limited to securing or backing the payments of the securities issued (therefore limiting other potential structures). On June 25 2011, however, new legislation was enacted to allow for securitisation trusts' assets to be used to back other types of payments owed to financial institutions or multilaterals (subject to limits and requirements). As an example, this new rule will allow for a securitisation trust to enter into derivative transactions or credit facilities directly, using its assets as collateral.

José Francisco Meier

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