Shearman & Sterling advised Chile’s four largest electricity generation companies (GenCos), AES Andes, Colbún, Enel and Engie Energía, in a novel sale and related financing transaction for their U.S. dollar accounts receivable originating under Chile’s Tariff Stabilization Law.
The transaction pioneers a structure designed to monetize present and future Tariff Stabilization Law credit rights and enhances the GenCos’ liquidity notwithstanding the revenue volatility caused by the law and the COVID-19 global pandemic. As a result of the transaction, the GenCos will also be well-positioned to make the necessary investments to transition to a decarbonized future.
Goldman Sachs arranged the sale of the receivables through a securitization whereby a Chilean special purpose vehicle was established as the issuer of debt to acquire the credit rights from the GenCos from time to time. An initial Rule 144A/Regulation S issuance of $488,907,000 in senior secured notes provided the funds for the purchase of the initial two tranches of the credit rights. Under sale and purchase agreements with each GenCo, the issuer may purchase multiple additional tranches of receivables arising under the Tariff Stabilization Law under this same structure over the next two years.
The Inter-American Investment Corporation provided a commitment to finance a portion of the receivables of each GenCo by purchasing a portion of the notes and committing to provide additional financing for future receivable purchases.
On June 30, 2021, the GenCos successfully completed the sale of the third tranche of accounts receivable through the issuance of a new series of variable funding 4(a)(2) notes. The funding was provided by Inter-American Investment Corporation and accounts managed by Allianz Global Investors.
The Tariff Stabilization Law was issued in 2019 in response to social unrest in Chile resulting from macroeconomic issues and a proposed increase in electricity prices. The law established a temporary tariff price that the distribution companies can charge their regulated customers. According to the law and regulations, the receivables accrue so long as the electricity price to regulated customers is below the prices payable by the distribution companies to the GenCos under their power supply agreements. These receivables will be calculated semi-annually and published by the Chilean Ministry of Energy. The receivables will constitute irrevocable obligations of the distribution companies to be repaid by December 31, 2027.