Last Wednesday, August 4, 2015, the Brazilian Economic and Social Development Bank – BNDES, launched a new credit line, named Credit Line to Support Liquidity (in Portuguese, Linha de Suporte à Liquidez – LSL), aiming at financing interests payable to investors by issuers of infrastructure bonds.
This new credit line was launched in the context of the Federal Government's Logistics Investment Program, whereby BNDES acts as financing agent funding up to 70% of the related infrastructure projects, such as roads, ports and airports. The credit amount may be composed of loans referenced with Long Term Interest Rates (in Portuguese, Taxa de Juros de Longo Prazo – TJLP), and other BNDES funding sources. The portion of funding referenced in the TJLP, which is a low-cost interest rate, will be larger if the minimum percentage of infrastructure bonds established for each project is issued. With regards to road projects, the funding of 10% of the project with infrastructure bonds will allow the share of TJLP based funding to increase from 35% to 45%. Likewise, the funding of 10% of port projects with infrastructure bonds may increase the share of TJLP based funding from 25% to 35%. Additionally, the funding of 15% of airport projects with infrastructure bonds may double the share of TJLP based funding, from 15% to 30%.
The LSL reveals BNDES' intent to improve investors' risk perception associated with infrastructure bonds. In practical terms, the LSL will work as a type of insurance, or stand-by credit, to whomever invests in infrastructure bonds – in the event an issuer does not have enough cash flow and needs extra funding in order to pay the interest rates to bondholders, the trustee or issuing bank will notify BNDES who will disburse the payable interest amount directly to the bondholders, under the conditions set forth in the deed of issuance. The new credit line will reduce the risk of default, because the interest payment is guaranteed.
The LSL beneficiaries can be companies with a concession or any other administrative title for the construction and operation of highways, airports, energy transmission lines and energy generation plants, among other projects in the logistics and transportation, urban mobility, energy and basic sanitation sectors. The credit line may only be accessed by issuers of infrastructure bonds to fund projects already financed by BNDES, which are carried out by special purpose vehicles where the project entrepreneurs hold at least 20% of the equity share.
The beneficiaries of the LSL credit line shall pay to BNDES a commission fee which may vary according to different parameters, such as the term of the loan. For instance, if the LSL is contracted for the issuance of a ten-year bond and can only be used during the first 2 years of the term, then the fee will be lower than if it could be used at any time during the period. The credit line may be accessed more than once by the beneficiary, according to the solvency state and liquidity needs of the project, up to the credit limit and during the LSL term. Notwithstanding the foregoing, this new credit line is currently limited to financing an amount equivalent to up to 2 years of interests of infrastructure bonds.
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