From building a port in Greenland to financing a steel mill in Arkansas, lawyers in North America are using increasingly complex funding structures to satisfy local regulations and the often conflicting demands of investors.
Business needs access to capital and although trading conditions have improved considerably in the US over the past couple of years, there is still a lack of liquidity and an intense desire to safeguard investment. This year’s submissions to FT North America Innovative Lawyers have shown law firms playing an increasingly central role in unlocking investment and enabling deals and projects to be financed.
In Greenland, the financing for the new national port, via the US private placement market, was helped by Morrison & Foerster partner Brian Bates, who led a team structuring the arrangement. The deal was unique in that it was a financing of specific assets — a harbour, quays and cranes — done in a way that gave the investors prior security in those assets, along with assignment of the lease from the port operator.
Greenland’s laws do not have the concept of land ownership, so investors are unable to take a security interest in the underlying property rights. The laws of the country, which is an autonomous Danish dependent territory, are also unknown to most international investors.
On offer were “secured notes which are secured by mortgages on the buildings to be built at the port, a collateral assignment of the lease between the company and the port’s principal operator, Royal Arctic Line, and a security interest in certain cranes which shall be installed at the port by the company following construction of the port”, all without a government guarantee or land ownership, according to the firm.
Freeport LNG, creating in Texas one of the world’s largest natural gas liquefaction and export facilities in the world, hired White & Case to structure the complex funding for the project and to handle equity and debt financings for each of three liquefaction trains — liquefaction and purification facilities.
“When the multi-owner structure was created the financial markets were still recovering from the global financial crisis,” the firm says. “A straightforward structure with a single project company was not a viable option.”
By creating a system where there were multiple owners, FLNG was able to tap multiple financing sources, though it also created “an incredible amount of substantive and procedural complexity”, says the firm, for which the deal was led by New York partner Jason Webber. “Simpler solutions that might have been acceptable to equity investors of the liquefaction owners were flatly unacceptable to their lenders or to FLNG, and vice versa.”
Another example is Freshfields Bruckhaus Deringer’s advice to KfW IPEX-Bank on the financing of the world’s first flex steel mill plant, at $1.3bn the largest private investment ever in Arkansas. Investors included secured and un-secured commercial banks, hedge funds, government lenders and grant providers.
“Many investors could only invest if certain conditions were satisfied, which often conflicted with the interests of other investors,” according to the firm. “With over 50 parties involved in the project, success relied on innovative inter-creditor arrangements that satisfied conflicting interests.”
The varying interests ranged from clawback rights if job creation targets were not met, working capital lenders’ need for first-priority security over accounts receivable and conditions around the order in which certain loans would be funded, among other issues. Some were required by the investor, others by the law.
The work was KfW’s largest financing in the US and may create at least 500 jobs, according to Freshfields. Partner Melissa Raciti-Knapp led the team on the project, which involved more than 50 parties.
“The arrangements were so successful that they made for a strong bankable project,” the firm says. “Despite challenges along the way, including a lawsuit from a competitor before closing, not a single lender or other credit provider failed to honour its commitment to the project.”
Other examples of North American legal teams playing a larger role in complex financing structures include Chadbourne & Parke’s work representing NRG Energy. The deal was a tax-equity financing of a $2.65bn portfolio of wind farms spread across eight states.
The challenge was to find a way for NRG to make the most competitive bid for the portfolio in the midst of the Edison Mission Energy bankruptcy.
Hogan Lovells also tackled similarly complex funding structures in its advice on the first securitisation of revenues from oil and gas royalties in Brazil, on behalf of BB Securities and BNP Paribas for the Rio Oil Finance Trust. The $2bn deal was the largest structured bond ever sold by an emerging markets issuer, according to the firm.
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