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Latham & Watkins Advises Goldman Sachs on DFC-Guaranteed Sustainability Bond for Brazilian Public Lighting and Smart City Services Project

November 8, 2021
The landmark transaction represents DFC’s first guaranty for a repack transaction in Latin America and its second guaranteed project bond in Latin America.

A team from the firm’s cross-disciplinary Latin America Practice, including lawyers from the Capital Markets, Project Development & Finance, and Structured Finance Practices, counseled Goldman Sachs, as global coordinator, bookrunner, and sustainability bond structuring agent, in the R$925 million Rule 144A/Regulation S offering by Rio Smart Lighting S.à r.l. (Rio Smart) of 12.250% Senior Secured Notes due 2032, and Goldman Sachs do Brasil Banco Múltiplo S.A., as lead coordinator, in the R$925 million offering by Smart RJ Concessionária de Iluminação Pública SPE S.A. (Smart RJ) of zero withholding-tax non-convertible debentures under Brazil’s infrastructure debentures law. The local currency-denominated notes are guaranteed by the United States International Development Finance Corporation (DFC) up to a maximum guaranteed principal amount and were used to fund the acquisition of all of the infrastructure debentures issued by Smart RJ to finance its 20-year public lighting and smart city services sub-concession from the municipality of Rio de Janeiro’s energy and lighting concessionaire. Earlier this year, Latham also advised the bookrunners and structuring agent in the first DFC-guaranteed project bond and first social bond for an infrastructure project in Latin America.

The DFC-guaranteed repack notes are a significant development in international financing of Brazilian public-private partnerships, representing a novel alternative to traditional local financing of infrastructure projects. The notes, issued by a Luxembourg special purpose vehicle owned by a Dutch stichting (foundation), are backed by cash flows from tax-advantaged Brazilian infrastructure debentures (zero withholding for foreign investors), necessitating a high degree of alignment between the requirements of the Brazilian and international securities. While denominated in reais, the notes settle in US dollars at the Brazilian Central Bank’s PTAX rate, which determines the maximum of the DFC’s US. dollar-denominated guaranty, requiring a sophisticated amortization and collateral structure.

Latham represented Goldman Sachs in the offering with a team led by partner Guido Liniado, with associates Daniel Chor and Giancarlo Reanda and international associate João Assunção. Corporate and finance partner Ellen Marks advised on risk retention aspects. Tax partner Elena Romanova and associate Ted Gkoo advised on tax matters.