Press Release
Milbank Closes $571 Million Brazillian Electric Utility Restructuring
Complex Cross-Border Restructuring Paves Way for Utility’s Future Financings
NEW YORK CITY, July 26, 2005 – Capping one of the longest-running and most complex financial restructurings in Latin America, Milbank, Tweed, Hadley & McCloy LLP, represented lenders in the closing of the refinancing of $571 million of debt of Light Serviços Eletricidade S.A. (Light), the electric distribution utility that serves over 3.3 million customers in Rio de Janeiro and its suburbs.
The closing, involving over fifteen financial institutions, is the culmination of over two years’ worth of negotiations while Light was in default, and paves the way for Light to obtain loans later this month under the Brazilian government’s emergency program to support the country’s electric utility industry.
Background on the Restructuring:
Light is owned by Electricité de France (EDF), the French government-owned national utility, and represents one of the largest overseas investments by EDF. As part of its capital improvement program in the 1990’s, Light had borrowed heavily from international and local Brazilian banks. It defaulted in payment on those borrowings in April 2003, and it has been in negotiations with its creditors since then. Light’s financial difficulties were shared by other companies in the electric power sector and in response to the crisis, the government, through the national development bank, Banco Nacional de Desenvolvimento Econômico e Social (BNDES), established a program (Programa de Apoio à Capitalização de Empresas Distribuidoras de Energia Elétrica) to assist companies in the sector. As part of today’s restructuring, Light will later this month be borrowing up to R727,268,000 (approximately $316 million) from BNDES. In addition, as a condition to the creditors’ refinancing, EDF converted over $420 million of intercompany debt into common stock of Light.
Partner Glenn S. Gerstell, who headed the Milbank team, commented on the transaction: “Cross-border financial restructurings are always complex, but Light’s situation and the duration of the process presented some additional challenges for the parties. After the creditors were finally able to reach agreement on a refinancing, Light was not awarded the tariff increases it had sought from ANEEL, the Brazilian electricity regulator, that were necessary to support the proposed refinancing. So the parties had to go back to the drawing board for further protracted negotiations.”
“In the meantime, many of the banks in the original syndicates sold their loans to distressed debt funds that had a different perspective. So corralling all the parties – the disparate creditors, EDF as shareholder and creditor, BNDES as new lender and the borrower itself – into a consensus restructuring was no easy task.”
The creditors in the restructuring were led by Citibank, N.A., the agent on the largest facility in the restructuring, which included approximately $337 million of senior syndicated loans and fixed rate notes and a Yen-denominated loan facility. The creditors participated in the restructuring by exchanging their defaulted loans and notes for new US dollar-denominated and Real-denominated notes of various series with maturity dates ranging up to 2013. Citibank was represented by Milbank, which negotiated and drafted the key restructuring documents, and as to Brazilian law matters by Machado, Meyer, Sendacz & Opice in São Paulo.
The Milbank team representing Citibank, N.A. was led by partner Glenn S. Gerstell and associates Steven I. Chung and Mark B. Francini of the Washington, D.C. office.
About Milbank:
Active in Latin America for many years, Milbank has played a prominent role in some of the region’s most innovative and complex transactions, from project financings and restructurings to securities offerings and IPOs. Milbank’s Global Securities/M&A/General Corporate Group is renowned for its leadership in sophisticated cross-border transactions and combines both the transactional and regulatory expertise necessary to successfully negotiate and close mergers & acquisitions and other transactions across a wide range of industries.
Milbank, Tweed, Hadley & McCloy LLP is a premier global law firm headquartered in New York, with offices in Washington, D.C., Los Angeles, Palo Alto, London, Frankfurt, Munich, Tokyo, Hong Kong and Singapore. Recently named Legal Week’s “INTERNATIONAL FIRM OF THE YEAR” for 2004, Milbank is a recognized leader in capital markets, corporate finance, project finance, acquisition finance, and other major fields of legal practice. The Firm's practice includes cross-border mergers and acquisitions and global securities transactions as well as assisting multinational clients with their cross border investments. Milbank provides a full range of services to many of the world’s leading financial, industrial and commercial enterprises, as well as governments, institutions and individuals.