New York, December 9, 2008—Almost two years ago, Shearman & Sterling was selected by the Panama Canal Authority (Autoridad del Canal de Panamá - ACP) for the lead role in advising on financing plan matters for the upcoming $5.25 billion expansion of the Panama Canal. That selection was based on the firm’s long-time prominence in Latin America, its global reputation in project development and finance and its track record of successful execution of innovative transactions around the world.
The signing of $2.3 billion of unsecured facilities took place today when representatives from five multilateral/export credit agencies met in Panama with ACP officials and government dignitaries. The remaining $2.95 billion will be funded by canal-generated cashflow.
Of the agencies, the International Finance Corporation (IFC) and Corporación Andina de Fomento (CAF) will each lend $300 million, the Inter-American Development Bank (IDB) $400 million, the European Investment Bank (EIB) $500 million and the Japan Bank for International Cooperation (JBIC) $800 million. The terms for the ACP include a 20-year tenor with 10 years’ grace. The investors are relying on the strength of ACP and its existing business, and the credit facilities are not secured by the physical structure of the canal itself or any other assets of the ACP.
The 20-year financing will support this historic Expansion Program designed to double the Canal’s capacity to more than 600mn Panama Canal/Universal Measurement System (PC/UMS) tons and allow it to handle large post-Panamax container ships that have become the new industry standard. The expansion includes construction of a new set of locks with water-saving basins and improvements to navigational channels. The Panama Canal is an important part of the global marine transportation industry, handling 5% of all maritime trade between all major economies in the world.
“The ACP's financing plan for the Expansion Program—anchored by five agencies from across the globe—reflects the importance of the Canal to the world economy,” said Cynthia Urda Kassis, a New York-based partner who co-heads Shearman & Sterling’s Project Development & Finance practice and has led a number of projects throughout Latin America. “While it was challenging to balance the policy issues of these five agencies with the ACP’s objectives in an integrated financing transaction, the strength and vitality of the ACP enabled this transaction to move forward, without hesitation, even in the midst of the current global financial crisis.”
Although ACP is an investment grade entity in a jurisdiction with no perceived political risk, the ACP nonetheless elected a financing structure exclusively led by multilaterals—in preference over various commercial bank and other options which the ACP had considered. The all-agency financing structure ensures that this financing will close in a market in which few commercial bank-dependent financings of this magnitude are being successfully completed.
The Shearman & Sterling legal team advised the ACP throughout the financing process during which the authority considered numerous alternatives before settling on the current financing plan configuration. This financing plan combines a mainly corporate financing structure with elements of project financing. Shearman & Sterling assisted the ACP and its financial advisors, Mizuho, in crafting an arrangement which addresses ACP’s unique legal nature and its corporate objectives.
“This is a really successful deal for all the parties involved,” said Manuel Orillac, a Paris-based partner of Shearman & Sterling who was one of the leaders of the Panama Canal project. “The structure accommodates the ACP’s goal to commence repayment of the financing once the new locks will be operational, and it enables the multilateral/export credit agencies to participate in a vital infrastructure project for world commerce.”
“All infrastructure projects come with challenges, and especially a landmark project that has great implications for the economic strength of the region and the world,” Urda Kassis added. “Perhaps, in time, we will see that this Panama Canal financing plan represents a new wave of creative financing for large infrastructure deals in Latin America and other regions.”
For additional information contact: Ron Brandsdorfer | New York | T +1.212.848.5081 |