Writing the rule book

Category: Latin American energy

Winner: Generadora Electrica San Rafael

Nominated by: Taylor Freres Americas (debt and institutional equity arranger; lead financial, strategic and technical adviser)

Other participants included: Troy Energia (sponsor); Nacional Financiera (senior debt provider); Macquarie Mexico Infrastructure Fund (institutional equity provider); Galicia Abogados (legal adviser to project and sponsor); Ernst & Young Mancera (tax and auditing services); HSBC (trust services); Acciona (turnkey EPC provider)

Date of transaction: 30th July 2013

Size of transaction: MX$1.1bn (€62.4m; $86.4m)

This was the deal that wasn’t supposed to happen. As nominator Taylor Freres said in its submission: “Implementing such a project was long thought to be impossible in Mexico’s volatile political and capital markets environment, in particular given ongoing battles over energy reform”.

The deal in question was Generadora Electrica San Rafael (GESR), the first privately held, independently financed hydroelectric facility in the history of Mexico, one of the three most important energy markets in the Americas region.

Other aspects of the transaction were unusual if not unique: it was one of only a few energy projects in Mexico to close and enter construction last year; it was one of a small number of Mexican energy projects to close an off-take agreement with US retailer Walmart; and it struck a fixed-price, fixed-delivery EPC [engineering, procurement and construction] contract with a large, global EPC provider in the form of Acciona (very rare for a small hydro project, and a significant reducer of the risk profile).

The judges noted Taylor Freres’ wide-ranging contribution to the deal, including: lead financial adviser for the arrangement of capital; lead technical adviser; owner’s engineer for the negotiation of the EPC contract and selection of turbine-generator packages; and lead strategic adviser to the sponsor.

On the financing front, the deal boasted the creation of a hybrid equity concept that was implemented in spite of there being no legal mechanism for preferred equity in Mexico.

What was admired more than anything, however, was that this deal could be an example for others to follow in the future. Those who may previously have looked at Mexico’s complex tax and legal frameworks with extreme trepidation may well be more inclined to take a second look now that those involved in GESR have looked at the problems and come up with solutions.

As Taylor Freres said in its submission: “We believe that much of what we accomplished on GESR will inure to the benefit of countless sponsors to come, in particular as Mexico’s private energy sector continues to grow and take shape.”

The judging panel agreed, noting also that Taylor Freres had authored a 214-page report on Mexico’s wholesale electricity market which is used as a primary reference by CFE, the country’s national electrical utility. This tome has brought transparency to a previously opaque market and helped arrive at a more complete understanding of how the market functions.

Actions speak louder than words – but words also have their use.

What the judges said:

“This deal could be a door opener. It says ‘yes, it can be done’.”

“The first of its kind in Mexico and some good sharing of risk.”

Honourable mentions in this category:

Transportadora Callao (nominated by Natixis)

Chaglla hydroelectric project (nominated by Veirano Advogados)