July 18, 2024
Tauil & Chequer Advogados advises CCR Rio SP on the largest project finance in the country's road sector, worth R$ 10.75 billion
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Tauil & Chequer Advogados in association with Mayer Brown advised CCR Rio SP, a subsidiary of CCR and the concessionaire for the Dutra and Rio-Santos highways, in a historic milestone for the Brazilian infrastructure sector. This is the largest project finance ever conducted in the country for the road sector, with R$ 10.75 billion raised from BNDES. The transaction includes a complex structure, comprising R$ 9.41 billion in incentivized debentures—the largest incentivized debenture operation in Brazil—and R$ 1.34 billion in direct financing from BNDES.
The financing was structured based on a non-recourse project finance model where the project's assets serve as collateral without requiring guarantees or endorsements from the controlling shareholders for debt repayment. The transaction includes only corporate contribution obligations regulated by an Equity Support Agreement (ESA) to cover some construction and operational risks, which will be secured by letters of credit amounting to R$ 3.7 billion issued by IBBA, Santander, and BBI.
The complexity of the operation also includes backstop tranches (optional resources), totaling R$ 1.5 billion, with R$ 187.5 million in credit and the remainder in debentures. These tranches are designed to mitigate project-funding risk, with BNDES guaranteeing the financing and an option for capital market disbursement in case of private demand. Another innovation in the credit operation is that disbursements will be made over nine years, until 2031, with an average annual release estimated between R$ 1.5 billion and R$ 2 billion, depending on the progress of the works.
An innovative aspect of the financing is the inclusion of R$ 500 million out of the R$ 9.4 billion in "transition debentures," intended for investments aimed at reducing the project's carbon emissions (including the use of recycled asphalt material and minimizing vegetation suppression). Upon proving the application of these funds, the company will benefit from a reduction of 0.08 percentage points in the cost of this amount. This transaction is one of the first "transition debentures" in the country, the first debenture linked to environmental issues in the road sector, and one of the pioneers in combining fund allocation with rate reduction through proof of use of proceeds.
The financing will be used for works on the Presidente Dutra (BR-116/RJ/SP) and Rio-Santos (BR-101/RJ/SP) highways, which are crucial for connecting 34 municipalities, including Rio de Janeiro and São Paulo—Brazil's two largest economic hubs, covering 60 million people and accounting for 41% of the national GDP. With a total investment forecast of R$ 15.5 billion, the largest among all federal road concessions, the financing covers 70% of this amount.
The transaction was led by partners Luis Montes and Carlos Motta, and associate Beatriz Lavigne.
The financing was structured based on a non-recourse project finance model where the project's assets serve as collateral without requiring guarantees or endorsements from the controlling shareholders for debt repayment. The transaction includes only corporate contribution obligations regulated by an Equity Support Agreement (ESA) to cover some construction and operational risks, which will be secured by letters of credit amounting to R$ 3.7 billion issued by IBBA, Santander, and BBI.
The complexity of the operation also includes backstop tranches (optional resources), totaling R$ 1.5 billion, with R$ 187.5 million in credit and the remainder in debentures. These tranches are designed to mitigate project-funding risk, with BNDES guaranteeing the financing and an option for capital market disbursement in case of private demand. Another innovation in the credit operation is that disbursements will be made over nine years, until 2031, with an average annual release estimated between R$ 1.5 billion and R$ 2 billion, depending on the progress of the works.
An innovative aspect of the financing is the inclusion of R$ 500 million out of the R$ 9.4 billion in "transition debentures," intended for investments aimed at reducing the project's carbon emissions (including the use of recycled asphalt material and minimizing vegetation suppression). Upon proving the application of these funds, the company will benefit from a reduction of 0.08 percentage points in the cost of this amount. This transaction is one of the first "transition debentures" in the country, the first debenture linked to environmental issues in the road sector, and one of the pioneers in combining fund allocation with rate reduction through proof of use of proceeds.
The financing will be used for works on the Presidente Dutra (BR-116/RJ/SP) and Rio-Santos (BR-101/RJ/SP) highways, which are crucial for connecting 34 municipalities, including Rio de Janeiro and São Paulo—Brazil's two largest economic hubs, covering 60 million people and accounting for 41% of the national GDP. With a total investment forecast of R$ 15.5 billion, the largest among all federal road concessions, the financing covers 70% of this amount.
The transaction was led by partners Luis Montes and Carlos Motta, and associate Beatriz Lavigne.
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