In a tough market where investors and project sponsors have tended to take a more cautious approach to deal-making over the past year, White & Case found itself advising on some of the most important transactions in Latin America – and a sizeable number of them, too.
It was no cakewalk. The infrastructure finance markets have hardly been an exception to the challenges more widely to financial markets posed by persistently high global interest rates, or by geopolitical uncertainty, which kept many investors at bay.
Yet, as White & Case partner Carlos Viana points out, despite this backdrop, some of the region’s largest and most emblematic deals in recent years still got done. These included a R$25.5 billion long-term financing of the Aguas do Rio water and sanitation concessions for Aegea in Brazil; and the $6 billion acquisition of Iberdrola assets by an investment vehicle owned by the Mexican government. White & Case, which wins Infrastructure Law Firm of the Year: Latin America for another consecutive year, advised on both award-winning deals.
Despite this and other important transactions, however, the truth is that the infrastructure sector in general moved at a more sluggish pace over the past year; refinancings, for instance, have been practically at a standstill, except in the context of acquisitions, Viana says.
“We expect that it will remain that way until there is a clarity on the downward trend of interest rates, at which point workflow should accelerate fairly dramatically,” he says.
In any case, the market has a long way to go, and the gradual easing of monetary policy in the US should help project pipelines recover.
Viana points out that, in recent years, the volumes of public private partnerships outside of Brazil have decreased significantly, especially in countries like Colombia. Small markets that had shown some dynamism, such as Paraguay, have come to a halt.
Peru, once a darling of infrastructure investors, lost its lustre amid incessant political upheaval and prolonged economic malaise, though there signs the tide may be turning there. “We have seen the reactivation of deal flows in Peru, both in renewable generation, although not at a large scale, and in transmission, with larger projects that are at different stages of development and financing,” Viana says.
More generally, project sponsors, unwilling to lock themselves into higher rates for longer periods, have been opting for shorter-term financings in anticipation of better conditions down the road, says Thomas Pate, a New York-based partner at the firm.
“Many companies have pivoted towards mini perm deals to cover a construction period of two or three years,” he says. “The challenge comes around structuring around takeout risk.”
Meanwhile, private debt investors have started to take a keen interest in infrastructure projects in the region, according to Pate – a development which could help boost deal-flow moving forward.
“There are a number of traditional and new credit funds that are now looking at Latin America and providing all kinds of customized solutions,” he says.
For instance, he says there appears to be greater availability and interest in mezzanine and holdco loans. While such customized structures come at a cost, “sponsors have become more sophisticated and understand the value they can obtain from this type of credit.”
This write up is for a 2023 Project & Infrastructure Finance Award Winner. The 2024 winners are announced October 10. Find out more here