This toll road financing was undoubtedly a landmark development for Brazil’s capital markets. With a 15-year tenor, it was the longest maturity ever achieved in the local capital market, surpassing the previous 12-year record. It was also the first time in Brazil that a toll road was financed entirely through the capital markets.

Concessionária Rodovias do Tietê’s 1.06 billion real ($466 million) debut in the Brazilian local bond market in June 2013 was also the first time a real-denominated infrastructure debenture was sold under the 144a/RegS format.

Rodovias holds a 30-year concession to operate, maintain and expand the 415-kilometer Marechal Rondon East corridor. Even though it was a brownfield project, it involved a high level of capital expenditure. The bond freed up enough cash for the concession to finance part of its 1.4 billion real investment plans to 2028.

“We accelerated our works program, bringing forward works that the manager believed would bring additional revenues to the concession,” says Rodovias’ chief financial officer, Ricardo Oliveira. “Those works were supposed to happen in 2022 and we’re bringing them to end-2016 or early 2017. We needed cash to make that happen and that’s why we raised more money.”

The inflation-linked 2028 deal pays an 8% interest rate and was priced at a challenging time for Latin American credits, and especially for corporates in Brazil. Standard and Poor’s changed the outlook on the sovereign’s BBB rating to negative a few days before the Rodovias bond sale.

An increase in Brazilian interest rates, the prospect of an end to quantitative easing in the US, and social unrest in the country over transport costs, were among the issues that fueled volatility in the market at the time. Challenging market conditions prompted other firms to postpone infrastructure debenture issuances, but Rodovias was able to pull the deal through.

The paper qualifies as infrastructure debentures under Brazilian regulations that offer some tax benefits to investors. These regulations were introduced in early 2013, and encouraged Rodovias to forge ahead with the deal despite the challenging conditions, says Oliveira.

BTG Pactual was lead manager and project finance advisor in the transaction, while Banco ABC Brasil, BES Investimento do Brasil, Banco Safra and Morgan Stanley were underwriters. Cleary Gottlieb, Simpson Thacher and Mattos Filho were the legal advisors. LF