Juan Fernando Gaviria of prietocarrizosa in Bogotá considers the best approach
The five years ahead will probably be the busiest in Colombian history in terms of new infrastructure. There will be projects all around the country not only in respect of highways (the famous fourth generation of concessions), but also in ports, oil and gas, power generation, among others. These projects will need all kinds of funding, both local and international and consequently, financing structures capable of attracting different kind of lenders and investors.
There are a number of key matters to structure these deals. From different kinds of equity arrangements (mezzanine loans, project bonds, private equity, etc.), to solid intercreditor agreements, to firm collateral packages covering the needs of the new projects and the different nature of their stakeholders.
In respect of collateral, the industry is now very well aware of the advantages of the new law on security interests on movable assets. Private foreclosures, the possibility of granting a security interest on future assets and the carve-out of the pledged assets from the liquidation of the guarantor are all advantages that are being currently used by the banking industry and that are, of course, fundamental to structure project financings.
However, a number of challenges survive. For example, when using trusts, lawyers must be very aware that one thing is the possibility of granting a security interest over future assets and another, yet very different, is the possibility of transferring to the trust assets that do not exist by the date of execution of the trust agreement. In our opinion, there is still a gap in Colombian law with regards to the possibility of transferring this kind of assets and, therefore, even though the trust may be properly conformed, the assets may still be on the side of its grantor if transfer of title is not properly perfected.
A further example is the security over future cash flows. Notwithstanding the fact that under the new law it is feasible to create a movable asset security interest over future agreements, the perfection of the same vis-à-vis third parties (third party contractors, for example) is still a matter of concern. On the other hand, even though account control agreements are now specifically regulated and treated as a security interest in Colombia, lawyers must be very careful when drafting the different provisions that should modify the banking account agreement as the security interest does not necessarily prevail over the provisions of the latter and, therefore, several provisions must be envisioned so as to cause both of them to work in tandem.
A very important area that should also be analysed is the attributes of this kind of security interest in project financings when the borrower goes into a restructuring. Indeed, if all of its assets are pledged to the lenders and, therefore, all of them are deemed necessary to conduct its business, no private collections or foreclosures are allowed. As a consequence, in these scenarios, taking control of the restructuring proceeding by the lenders and other investors is critical by making sure that all voting rights are on the side of the senior lenders and investors. For such purposes, it must always be taken into consideration that, in our opinion, subordination agreements are not necessarily opposable to the restructuring court in Colombia.
As it is widely known security interests over real estate escape the provisions of the new law. Nevertheless, it abrogated the prohibition of secured parties to take title to the secured asset without a judicial order. In other words, lenders and investors benefiting from a mortgage may also conduct a private foreclosure process upon the default of the borrower, as in the case of a security interest over movable assets. Taking this into consideration, local counsels should also deal with the interaction of both movable assets guarantees and mortgages in order to try and have a foreclosure over the entire going concern of the borrower.
Finally, project documents must also take into account the possibility of governmental authorities taking over the collateral. In early 2014 there were two precedents that alarmed the industry as they could impact the transfer of future receivables into, for example, a trust for the benefit of lenders and investors. Despite the fact that some of these attacks have been partially mitigated, in our opinion the risk could eventually remain. Certainly, certain Colombian authorities in charge of controlling the state-owned finances have been of the opinion in certain cases that no private agreement may prevail over the laws protecting the revenues and rights of the Colombian state and, as a result, they could order changes and amendments to private agreements that, if they are not implemented, could trigger budgetary investigations and sanctions to legal representatives of concessionaires of public assets, for example.
In conclusion, there have been tremendous improvements in Colombia to welcome the new infrastructure projects. But, as the legislative changes did not make an overall amendment to all matters pertaining to the development of a project, there are a number of issues to be addressed. The proper structuring of the first project financing in this new scenario will be very important to create a precedent that could invite new lenders and investors to fund the other projects to come with confidence.