Issue link: https://digital.shearman.com/i/1205013
Waivers and Consents Whether rightly or wrongly, it is often perceived, particularly in the European market, that institutional investors can be slower in dealing with waiver and consent requests than banks. This may be because the bank pool on a typical large-scale multi-creditor platform generally only includes banks with whom the infrastructure sponsor has close relationships. The investor pool, however, can end up becoming much wider when each of the individual investors/sub-funds is included and often the infrastructure sponsor has no direct relationship with many of them. One area where investors may begin to see more of a push is in ensuring that the sub-investors/funds that they manage are more responsive to waiver or consent requests and that they use their relationships and influence over sub-investors/funds to help infrastructure sponsors in meeting their aims. In addition, an increasing number of European infrastructure sponsors are undertaking roadshows in between specific issuances in the U.S. to meet ever smaller investors as a way of building up direct relationships with them and therefore not need to rely as heavily on the relationship with the fund manager. MAKE-WHOLE Make-whole is often hotly contested by both U.S. and European investors on infrastructure financings in both markets, but is not typically a feature of the bank debt market. On multi-creditor platforms there is also often debate as to whether make-whole should rank pari passu with the principal of other funders (e.g. banks). Infrastructure sponsors in both the U.S. and European markets are increasingly asking for make-whole holidays towards the maturity of their private placement debt in order to refinance. This is now starting to be seen between three and six months prior to maturity. In refinancing scenarios, investors may be asked to roll their notes into the new structure to avoid the need to pay make- whole. For the rollover to work, the new notes typically have to have the same pricing and tenor as the refinanced notes, otherwise there may be tax consequences for the investor. A new note will also need to be issued with a new private placement number (if required). This approach has worked successfully on a number of recent deals. SWAP INDEMNITY US investors typically require swap indemnities when investing abroad to the extent they are not a natural currency lender. Increasingly, U.S. investors are using their ability to lend naturally on European projects in order to set themselves apart from their U.S. competitors, but swap indemnities are still often required by many U.S. investors. For European sponsors, one of the key tensions in the way the Model Form swap indemnity language is drafted is that the issuer is obliged to pay amounts of make-whole in U.S. dollars, but it will not receive any "Swap Breakage Gains" (again in U.S. dollars) until it has paid the make-whole. For a European issuer that does not have income or obligations in U.S. dollars (other than the payment of make-whole), this means they would need to buy U.S. dollars in the market in order to pay the make-whole and then, if there is a "Swap Breakage Gain", they may receive U.S. dollars from the investor which they again, need to sell. European infrastructure sponsors have been seeking to have the two amounts netted before a payment is made so that they only need to pay (or receive) a netted amount of U.S. dollars, thus lowering their currency exposure. This conversation continues, including at the ACIC committee level. There is clearly a great deal of activity in the infrastructure funding space and plenty of scope for crossover and the sharing of experiences between the U.S. and European infrastructure finance markets. FOR MORE INFORMATION PLEASE CONTACT: 9 KATIE HICKS Partner London T +44 20 7655 5035 katie.hicks@ shearman.com JONATHAN TOFFOLO Associate London T +44 20 7655 5767 jonathan.toffolo@ shearman.com Katie Hicks is partner in our London office and leads our brownfield infrastructure finance practice. She recently spoke at the Private Placements Global Forum Europe – Infrastructure Summit (on October 10, 2019), the GADS World Conference in Dublin (November 11-13, 2019), the PPIF 2020 in Miami (January 21-24, 2020) and will be speaking at the Infrastructure Investor Global Investor Forum 2020 in Berlin (March 16-19, 2020). Robert Freedman is a partner in the Projects, Development and Finance practice of our New York office and Co-Head of the Firm's Energy Group, and has significant experience acting for institutional investors in the U.S. and abroad, particularly in the Energy and Infrastructure Sectors. He also spoke at the Private Placements Global Forum Europe – Infrastructure Summit (on October 10, 2019), the ACIC conference in New York in October 2019 and the PPIF 2020 in Miami (January 21- 24, 2020). Jonathan Toffolo is an associate in the infrastructure team in our London office and regularly acts for both infrastructure sponsors and both U.S. and European institutional investors on infrastructure transactions in Europe.