Some project financings make a lasting mark not just in terms of the physical impact of the assets they support, but in the very financial markets that enable them.
A transaction for two water and sanitation concessions in the Brazilian state of Rio de Janeiro is one such case.
The sheer scale, scope and sophistication of the $4.6 billion transaction for Aguas do Rio Blocks 1 and 4 sets it apart as among the most significant in recent history, not only in Brazil but in Latin America.
The deal, which wins Infrastructure Financing of the Year: Brazil, was put together to refinance a bridge loan taken out in 2021 at the time when Aegea first won the concessions.
The complex structure – which includes a R$15.5 billion loan from national development bank BNDES, two sustainable and blue debentures totalling almost R$9 billion, multilateral loans, letters of credit from commercial banks, and the participation of more than 20,000 retail investors – also wins the award for Water/Sanitation Financing of the Year.
Notes André Pires, Aegea’s CFO: “We always believed that the long-term refinancing would be led by BNDES. But due to the sheer size of the deal, we also considered that other players would be required to participate.”
In addition to repaying the bridge loan, Aegea wanted to raise enough capex funding for the lifetime of the 35-year concession.
Negotiations with BNDES started in the second half of 2021, and the contract was signed in December of the following year. In August 2023, the SPV Aguas do Rio 1 and 4 issued R$5.5 billion in 11-year and 19-year infrastructure debentures, with a sustainable and blue tag. It was the first step of a long process that culminated with the issuance of another set of debentures, worth R$ .4 billion, in April 2024.
In the meantime, other sources of funding started to deliver. BNDES, via different lines of credit, is forking out the largest piece of the deal, at R$15.5 billion. It also purchased around R$1.9 billion of the first set of debentures.
A subsidized water and sanitation program managed by state bank Caixa Econômica Federal was liberated via BTG Pactual, to the tune of R$1.5 billion, and IDB Invest and other multilaterals contributed similar amounts. In total, 18 banks participated in the deal, as well as an army of legal advisers and other participants.
The total value of the whole package is estimated at R$25.5 billion, in what can only be described as a landmark transaction, for its size and sophistication, in the Brazilian infrastructure market.
“It is an innovative fully funded structure where AEGEA does not need to apport capital. It is self-financed by its own cash flow,” Pires says. “Guarantees are linked to the project itself as well. It was a complex negotiation, but we have managed to finance the concession for its whole duration, mitigating the risk faced by AEGEA and keeping our balance sheet free for other projects.”
Pires says the Aguas do Rio deals could serve as a template for water and sanitation transactions that require significant capex investment but which also promise to deliver steady returns in the long run.
“It illustrates the dynamics of the business not only from the point of view of capital needs, but also in terms of revenues, commercial and operational strategy,” he says.
He notes as especially noteworthy the fact the concessions were funded via a non-recourse project finance structure with the support of BNDES and the participation of multiple market players.
“It is a case study for a sector where knowledge about project finance remains limited in Brazil,” Dias points out. “Until recently, the only large companies in the sector were state-owned utilities that made investments that were not enough for the needs of the population. The fact that we were able to attract 20,000 retail investors for our first debenture shows how it was possible to raise financing for a project that is vital for Rio de Janeiro and Brazil as a whole.”
Águas do Rio Blocks 1 & 4
Sponsors: Aegea Saneamento e Participações S.A. (Águas do Rio)
Lead Arranger, Lead Coordinator: Itaú BBA Lead Arrangers: BF Capital
Arrangers, LC Providers: Banco ABC Brasil; BNDES; Bradesco, BTG Pactual; IDB; JP Morgan; Proparco; Safra; Santander; SMBC; XP Investimentos
Lenders’ Counsel: Stocche Forbes; Clifford Chance
Financial Advisors: Itaú BBA; BF Capital
All supporting financial institutions and law firms were transmitted to LatinFinance by the award category winners. For updates please email awards@latinfinance.com