Cover & spine - Trade Finance

DEALS OF THE YEARBespoke structure for Costa Rican powerGarabito – ECA-backed financingMLAs: HSBC; KfW IPEX-Bank. Borrower: Instituto Costarricense de Electricidad SPV “Fideicomiso Planta TermicaGarabito”. Amount: $235 million. Tenor: 12-years. Other participants: Banco de Costa Rica (onshore trust bank).ECA: Euler Hermes. Insurance adviser: Jardine Lloyd Thompson. Lawyers: Allen and Overy (UK & NY); LLMR&T (CostaRica). Equipment supplier: MAN Diesel SE.What sets this deal apart is that the banks and ECA created a bespoke financing forCosta Rica’s state-owned power and telecommunications provider, InstitutoCostarricense de Electricidad (ICE), allowing the company to combine local bondplacements with the long-term fixed rate commercial interest reference rate (CIRR)funding loan supported by Euler Hermes. The structure of the deal via special purposetrust with an operating lease, allowed ICE to obtain off-balance sheet financing andprompt execution for this priority project.ICE urgently required the construction of the 200MW Garabito Thermal ElectricPower plant, in order to provide the country with urgent diversification of generationsources. Costa Rica is heavily reliant on hydroelectric generation and has experiencedpower shortages and rationing during dry seasons.In order to provide a quick execution for the commissioning of the power plant, ICErequired an off balance sheet operating lease. This provided an additional challenge tothe financing structure which was being negotiated during the middle of the creditcrisis.HSBC, acting as mandated lead arranger and offshore trust bank, and KfW IPEX-Bank, acting as MLA and funding bank, provided a Euler Hermes CIRR financing forthe EPC contract with MAN Diesel SE, which complemented the local bondplacements provided by Banco de Costa Rica for this special purpose vehicleFideicomiso Planta Termica Garabito. The 12-year deal has semi-annual instalmentswith the last payment scheduled for 2022.This was the largest CIRR rate funded deal provided to a single borrower by theGerman state during 2009, key to the lease structure which required fixed rate fundingto match the fixed lease payments. The financing put in place by HSBC and KfWallowed the special purpose trust to raise funding at lower all-in costs than Costa Ricansovereign pricing, while ensuring the complete financing of the project at a time whenlocal debt markets were very illiquid.Trevor Udell, associate director, project and export finance at HSBC, concludes:“The Garabito Power Project is key to the Costa Rican generation mix, which iscurrently heavily reliant on hydro resulting in a number of power shortages over thepast years. HSBC provided the state-owned sponsor with a bespoke low cost, fixed ratefinancing off-balance sheet solution, allowing them to execute this project in a timelymanor. This transaction was first of its kind for ICE and a landmark transaction inCentral America. The support of the German government with Euler Hermesguarantee and KfW-IPEX long-term fixed rate CIRR funding ensured the success ofthe financing which was negotiated in a challenging time with low liquidity in CostaRican and international markets.” ■46 TRADE FINANCE The Guide to Global Trade Finance Markets 2011