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Friday, 24 November 2017

Latin America Loan: Brookfield’s US$600m-equivalent dual-currency term loan

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Power play

Brookfield’s US$600m-equivalent dual-currency term loan to help fund its US$3.5bn purchase of Colombia’s Isagen was far from easy, but skilful execution made this complex syndication a success.

In a year of low loan volumes in Latin America, the deal stood out for its uniqueness and the borrower’s ability to navigate a complex funding process for what was Colombia’s largest privatisation in nearly a decade.

When the Canadian investment group agreed to buy 57.6% of state-controlled utility Isagen in January for approximately US$2bn, Scotiabank and SMBC were quick to stump up US$600m to support the deal.

But a lengthy privatisation meant that leads had to time syndication to take place just before the last of two subsequent tenders for the remaining shares, which resulted in Brookfield acquiring a 99.64% interest for about US$3.5bn.

That was a risky proposition for underwriters, who were ultimately forced to wait until late June even before starting the lengthy process of offloading debt whose pricing and tenor had been set earlier in the year.

By that time, lenders that had seen their funding costs rise were less enamoured with the pricing, the five-year tenor or indeed the holding company structure being used by Brookfield.

Syndication of the loan closed on September 7.

“Between January and September, a lot of banks saw their funding costs increase, and Colombia was a new market for some of them,” said Kristie Pellecchia, head of loan syndications for Latin America and US corporates at SMBC.

“A holdco loan was also a non-starter for some banks … but the mandatory prepayments were fairly aggressive and that helped the remaining banks to be open to doing a holdco.”

Further complicating the trade was Brookfield’s desire to fund a portion of the acquisition in pesos in an effort to reduce FX risk.

That meant bringing in local banks that were not typically used to lending under an international structure and preferred to drive deals from start to finish.

It also increased risks for leads that had originally funded in dollars amid heightened FX volatility and rising interest rates in Colombia.

“We wanted to be as flexible enough to give [Brookfield] the opportunity to do as much of the loan in Colombian pesos,” said Pellecchia.

Staying the course, leads were able to stick to Brookfield’s targeted pricing to complete a US$600m five-year package. In the end, they syndicated a US$322.4m tranche at 250bp over Libor and a Ps525bn (US$177.6m) loan at 390bp over the local interbank rate. Leads also came in with a US$100m revolver.

The dollar tranche was syndicated among Natixis, Mizuho, Banco de Credito del Peru and Atlantic Security, while the peso tranche was placed with Bancolombia and Davivienda.

The Export Development Bank of Canada provided a US$150m loan alongside the term loan.

To see the digital version of this review, please click here .

To purchase printed copies or a PDF of this review, please email gloria.balbastro@tr.com

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