Jan 12, 2017

The Brazilian Development Bank (BNDES) publishes the 15^th detailed funding conditions on Thursday for the concession of the Florínea-Igarapava Road System that will be bid by the Agência Reguladora de Serviços Públicos Delegados de Transporte do Estado de São Paulo (ARTESP), according to a public notice published on November 4^th.

According to the general loan conditions disclosed by BNDES for the road system during the first meeting of the Investment Partnership Program Committee (PPI), in September this year, BNDES will be able to finance up to 50% of the value of eligible items of the project in Brazilian Long Term Interest Rate (TJLP).

The resources encouraged will be destined for the expansion and improvement of the road system, implementation of information systems and acquisition of national equipment included in the 1st cycle of investments, carried out in the first eight years of the concession. The values concerning the grant and conservation actions, road restoration and expropriations are not applicable for financial support.

BNDES can complement its financial support up to 80% of the value of eligible items based on market costs, preferably by means of infrastructure bonds issued under Brazilian law. Each project must have at least 20% of equity. (Information was updated on March 14, 2017)

The funding period will be of up to 15 years with a Constant Amortization System (SAC). At the discretion of BNDES, the credit operation may be divided into tranches that consider the term of execution of the investments, the grace and amortization periods being counted from the provision of resources. In any event, the period elapsed between the signing of the financing contract and the last amortization cannot exceed 20 years.

The value of the credit from BNDES will be determined according to the payment capacity of the project, provided a minimum Debt-Service Coverage Ratio (DSCR) of 1.30 of the project is observed, which will be assessed annually. The warranties of the financing shall be determined based on the technical-economic analysis of the enterprise and shareholders and may be shared only with other credits when intended exclusively for financing investments of the project, the sharing of warranties for financing the grant not being possible.

Governance requirements – In addition to the general loan conditions disclosed last week for airport concessions, BNDES will include provisions of governance in its loan contract, in particular for regulating related-parties transactions (TRP).

For the values which have been previously established by BNDES, the TRP will be subject to approval by the Board of Directors (the Board) of the concessionaire, with the exclusion of members with potentially conflicting interests. When analyzing each TRP, the Board must evaluate price and quantitative indicators and take into account proposals from at least three companies with similar technical ability.

The Board must have an independent committee to support the analysis of TRP. The independent committee shall provide an opinion with its favorable or not favorable opinion about each TRP. The minority shareholders representing at least 5% of voting shares may require a feedback by an independent body.

A relevant fact must be disclosed whenever TRP is contracted, with the approval of the Board. Furthermore, a note about the related-party transactions must be included in the explanatory notes of the Quarterly Financial Results, containing the disclosures foreseen in the accounting rules which are applicable to the annual financial statements. The verification of whether the mechanisms established above have been properly implemented must be the object of an annual external audit, at the expense of the company.

BNDES will also require disclosure of operational data on the internet in a level of detail set by BNDES, with monthly updates and of accounting balance sheets, with quarterly updates.

In its loan contract the Bank will also include the obligation of contracting a managing/certifier company, which will act on behalf of the creditors, including bondholders, especially in the production of reports about the reasonableness of CAPEX (Capital Expenditure), the physical progress of the work, the reasonableness of hiring service providers, the fulfilment of the granting obligations, enterprise risk management, and the technical analysis of events that result in pleas to the granting authority.

BNDES highlights that the financing conditions are available for the investments foreseen in the international competition to exploit the Florínea-Igarapava Road System and does not necessarily imply the right of obtaining the funding by the future winner of the competition.

After credit granting, the concession holder must claim the credit with BNDES, which will examine the registry and credit risk situation of the claimant and of potential guarantors as well as all legal, economic, and environmental aspects of the project presented.