Akin Gump innovates: A creative approach to one of Central America’s most challenging and complex transactions
The evaporation of available credit was only one of the ways in which the financial crisis of 2008-09 took its toll on institutions, investors and business of all sizes. It was against this backdrop that Akin Gump sought to finance a geothermal power plant in Nicaragua that would supply a fifth of that country’s electricity—a challenge even in better times, but a Herculean task in the aftermath of the global market collapse. Financial Times recognized the process and result by designating the transaction as “Commended” in the Financial Services category of its 2010 US Innovative Lawyers report.
The Akin Gump team, led by partner Dino Barajas, was inspired to structure the deal as a series of interlocking loans from a number of regional, European and multilateral development banks. The San Jacinto-Tizate Geothermal Power Project, the enterprise on which the Akin Gump team worked on behalf of Polaris Energy Nicaragua, S.A. (PENSA), was financed, then, by securing each lender via a guarantee from the previous one, creating a chain of parent companies and individual loan agreements. This approach is in marked contrast to the usual set of common terms for all lenders in the financing. Further, the San Jacinto project was financed in two phases, the repayment of the first securing the second, despite the fact that the same collateral secured both loans. As Mr. Barajas noted, “Every investor needed a belt and suspenders, given there was not a whole lot of precedent with Nicaraguan courts. One project, two financings—I don’t think I’ve ever seen [that] in another deal.”
The success of this innovative financing scheme has secured for Nicaragua not only the construction of a strategically critical domestic energy source, but also a substantially higher profile in development and project financing circles that bodes well for the country and the region’s prospects for forward-looking investment.
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