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The Panama Canal: 100 Years...and Still Making History

13 Aug 2014

As the Panama Canal celebrates its 100th anniversary this month, its future looks to be as bright as its historic past. Shearman & Sterling is proud to act as counsel to the Panama Canal Authority (Autoridad del Canal de Panamá - ACP) on financing matters, including on its groundbreaking Expansion Program.

When completed, the expansion will enable larger, post-Panamax ships to use the Panama Canal and will support the needs of growing global trade and related shipping activity. In addition, the Panama Canal’s expansion has already had a positive domino effect throughout the Americas and globally, as ports are expanding their facilities—dredging deeper channels, raising existing bridges and expanding their cargo handling capacity—and competing for the additional activity that will result from the larger ships that will soon use the Panama Canal.

Back in 2008, in the midst of the global economic crisis, Shearman & Sterling advised the Panama Canal Authority on financing plan matters for the $5.25 billion expansion of the Panama Canal. The firm’s innovative work at that difficult time for the financing of projects generally—working with the Panama Canal Authority and its financial advisor, Mizuho, in devising a creative financing plan that utilized multilateral financing agencies—played a positive role in the success of the Expansion Program.

“The Panama Canal has been a part of world history for 100 years, and we are honored to have played a small part in preparing the canal for the next 100 years,” says Cynthia Urda Kassis, a New York-based partner who is one of the leaders of Shearman & Sterling’s Project Development & Finance practice and has led a number of projects throughout Latin America. “The Panama Canal has been a great facilitator of global trade and, in particular, has had an important effect on growth and development throughout the Americas. The expansion will allow the Panama Canal to continue to play a vital role in world commerce in the 21st century.”

Adds Manuel Orillac, a Shearman & Sterling partner who specializes in Latin America financing and was involved in the Panama Canal financing project from the start, “It has been incredibly gratifying to visit with our client, the ACP, in recent years and see first-hand the progress achieved on the expansion project and world-class standards that it applies to its operations. The Panama Canal supports global trade by all nations in a neutral, non-discriminatory manner, and the Expansion Program is, without overstatement, critical to the world’s economic vitality.”

As part of the financing plan, the multilateral and export agencies, the International Finance Corporation (IFC) and Corporación Andina de Fomento (CAF), each lent $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 included a 20-year tenor with 10 years’ grace. At the time of the signing, the lenders expressed their confidence in the strength of ACP and its existing business.

The 20-year financing plan was intended to 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 larger, 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.
When planning for the financing for the expansion in 2008, the ACP, an investment grade entity in a jurisdiction with no perceived political risk, elected a financing structure exclusively led by multilaterals/export agencies—in preference over various commercial bank and other options which the ACP had considered. The all-agency financing structure ensured that this financing would close at a time when few commercial bank-dependent financings of this magnitude were successfully completed.

The Shearman & Sterling legal team advised the ACP throughout the Expansion Program financing process during which the authority considered numerous alternatives before settling on the final 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 addressed ACP’s unique legal nature and its corporate objectives. Shearman & Sterling is proud of its role in the Expansion Program financing and its continued role as financing counsel to ACP.

“As we said at the time, this was an outstanding financing arrangement for all the parties involved,” Orillac says. “It is really amazing when you reflect back on the visionaries who built the Panama Canal back in 1914. They changed the world and this region.”

“The Panama Canal has stood the test of time,” Urda Kassis adds, “and with the current expansion, there is much more history to be made in the years to come.”

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