Unique Solution

“After winning the concession, the lead sponsor approached J.P. Morgan for financing in 2016,” said Ignacio Alvarez-Cedron, who helped lead the financing for J.P. Morgan in partnership with Santander. “We realized it required a unique solution.”

One challenge facing the project was the source of funding. Colombian banks had little experience with project finance and the risks associated with project construction and future revenue streams. In addition, the required amount of $575 million was larger than what the country’s domestic capital markets traditionally accommodated.

“So we opted for the deal to be entirely in dollars, funneling international capital into a ‘green field’ infrastructure project in Colombia,” explained Alvarez-Cedron.

But with the dollar financing came a potential headache for the client. Most of their revenues will come in pesos from toll fees and so any movement between currencies could have an adverse impact. Leveraging the J.P. Morgan franchise, the team worked with derivatives marketing to produce an option that allowed the sponsor to hedge its currency risk. The specific and rare nature of the derivative—an 8-year call spread on Colombian pesos—was something few other banks could have proposed and executed.

With the financing plan in place, the project began seeking permission to begin construction from the indigenous communities whose land would be impacted by the road. Five of the six communities responded positively, but one entered negotiations with the government to first secure increased investment in their village.