Brazilian Energy Distribution Giant Re-profiles Debt

AES Eletropaulo, the largest energy distribution company in Latin America, operating in the metropolitan area of São Paulo and responsible for 15% of all energy distributed in Brazil, has successfully completed the re-profiling of R$2.287 billion (approximately US$786.044 million) worth of its debt. The deal closed on March 12, 2004.

Following restructuring of all debt at the parent level related to the Brazilian holdings of AES Corp. The re-profiling by AES Eletropaulo of a substantial part of its indebtedness is an important step towards recovery of a sound financial condition and wide access to the financial and capital markets, affected in recent years by the devaluation of the Real, the energy rationing and the regulatory uncertainty.

The re-profiling proposal was accepted by all lenders involved, comprising 29 local and foreign financial institutions, originally lenders and holders under 13 different facilities, such as syndicated loans, floating rate notes with foreign exchange risk mitigation, trade financings and working capital loans. All these instruments maturing in the short-term have been replaced by new terms and conditions under a consolidated documentation.

The consolidated syndicated facility was structured under two common terms agreements, under New York law (Dollars) and Brazilian law (Reais), overarched by an intercreditor agreement under Brazilian law. The facility provides for four tranches (tranches A, B, C and D, for each Dollars and Reais), evidenced by the issuance of new Dollar notes and the granting of new Reais loans.

The maturities of the tranches range from 2006 to 2008, and the interest rates are based in interbank rates (LIBOR or CDI, as applicable) plus a margin ranging from 2.50% to 4.75%, with a 0.25% step-down after a required down-payment with proceeds to be received from BNDES in connection with the rationing and the CVA deferral loans. Approximately 30% of the re-profiled debt remains denominated in Dollars, as compared to 70% before the re-profiling, therefore reducing significantly the exposure of the company to foreign exchange variation risk.

All lenders benefit from a security interest created over receivables of the company of up to 30% of its daily revenue, limited to R$200 million. A centralizing arrangement assures that in case of default the lenders will be entitled to expedited collection over the proceeds of the receivables, as deposited in the collection network of the company.

?Putting together a complex documentation, carefully crafted to accommodate the interests and needs of the company and those of the several lenders under many existing facilities, was an achievement for all lawyers involved in the transaction,? said Andre Fiorotto, who acted as in-house counsel for AES Eletropaulo and provided legal advice in connection with all finance and corporate aspects of the transaction. Fiorotto also liaised with the financial management and external counsel during the extensive phase of negotiations.

Shearman & Sterling LLP acted as New York counsel to the company. Partner Cynthia Urda Kassis and associates Gregory Tan, Vanda Bernardes, Beverly Watson and Karin Yamauti. were responsible for designing the new contractual structure under New York law and drafting the related documentation, and played a key role in the negotiation and implementation of the deal.

Pinheiro Neto Advogados acted as Brazilian counsel to the company, through partner Alexandre Bertoldi and associate Lior Pinsky. The firm was responsible for drafting the Brazilian law documentation and for providing advice on legal matters related to the transaction.

Sidley Austin Brown & Wood LLP, through partner Andrew Quale, Jr. and associate Gilberto Sanclemente. Kelley Drye & Warren LLP, through partner Patricia Lee, and White & Case LLP, though partner Donald Baker and associates Nicolas P. Stable and Victor Mendoza, acted as New York counsel to the lenders, in particular to those under former BankBoston, JPMorgan and Deutsche syndicates, respectively.

Machado, Meyer, Sendacz e Opice Advogados, represented by partner Nei Zelmanovits and associate Mauro Leschziner, which reviewed all Brazilian law documents and aspects of the transaction, acted as Brazilian counsel to the lenders. Various financial institutions were also represented by respective in-house counsel.