Major Peruvian construction group completes leveraged recapitalization through exchange offer

Peruvian-listed company Graña y Montero S.A.A. (GyM) has successfully completed an exchange offer whereby it publicly offered to redeem part of its outstanding common shares in exchange for newly issued secured corporate bonds for up to US$10 million. The transaction closed on December 23, 2004, and was well received by investors: shares representing approximately 7.8% of GyM?s share capital were validly tendered and accepted for exchange, in consideration of approximately US$7.7 million in GyM secured corporate bonds.

Eduardo Lopez, of Rodrigo, Elias & Medrano Abogados, commented: ?This was a complex leveraged recapitalisation and a tailor-made structure carefully devised to provide an exit to a single strategic investor, which had previously acquired GyM equity coupled with a put option over the same stock. The real challenge was the need to align the legitimate interests of such strategic investor with those of GyM minority shareholders and the market. In the end, the designed structure did just that: the strategic investor got a valuable exit alternative and agreed to surrender its put option; minority shareholders received equal treatment and benefited from a transaction providing greater liquidity to their holdings; and GyM replaced its imminent repurchase obligation under the put option (US$6.8 million strike price) with a more balanced repayment schedule under the indenture, while benefiting from favourable market conditions.?

The structure also included a security package guaranteeing timely payment of the bonds? principal and interest, which involved setting up a trust to which GyM transferred US$3.4 million in cash, as well as the future proceeds derived from the eventual sale of GyM?s equity stake in a real estate project up to US$1.8 million.

The secured corporate bonds were issued on December 30, 2004, and have an 8-year maturity. Each bond has a face value of just over US$0.30 and was exchanged for one outstanding GyM common share.

GyM is the holding company of the Graña y Montero Group, one of the largest construction groups in Peru, actively involved in infrastructure development and with an estimated project portfolio of US$268.5 million over the next two years.

Rodrigo, Elias & Medrano Abogados advised GyM through senior partner Gino Sangalli and associates Eduardo Lopez and Fernando Molina. Founding partner Humberto Medrano and associates Jose Chiarella and Raul Hidalgo advised on tax matters. GyM received in-house counsel from Claudia Drago and Ana Ferrucci.

Banco de Credito del Peru (BCP) acted as arranger of the exchange offer and Credibolsa SAB acted as placement agent. Both of them received in-house counsel from Alejandra Agurto and Giselle Sersen.