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US$5 billion financing of the Muskrat Falls Project reaches financial close

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Nalcor Energy

Nalcor Energy, a Newfoundland and Labrador Crown corporation, is developing the Muskrat Falls Hydroelectric Generating Facility and the Labrador-Island Transmission Link projects. The Federal Government of Canada has provided a loan guarantee (Sovereign Guarantee) for the financing of the projects. Fasken Martineau was lead project finance counsel to Nalcor Energy. Financial close was reached in December 2013. At $5 billion, it is the single largest infrastructure financing in Canadian history. The critical aspect of the financing for the Lower Churchill hydro and transmission project was to so structure the financing in order for the AAA credit rating of the Sovereign Guarantor to be transferred to the project single purpose vehicles such that the pricing for the debt would very closely approximate that of the AAA Sovereign. A typical project financing, even with the Sovereign Guarantee, would not meet that objective adequately as the financial markets would always add a premium for a perceived project risk. Fasken Martineau conceived and proposed a modified "wrap structure" which sheltered the lenders from any project risk and provided them with direct recourse to the Sovereign with an unconditional and irrevocable payment obligation on the part of the Sovereign subject to no defences and access to the consolidated revenue fund of the Sovereign with no requirement for any annual appropriations. The Sovereign Guarantee was tailored to satisfy the credit transference conditions of Moody’s, S&P and DBRS, the structure was explained to the rating agencies and it was accepted by all three. The debt instruments were designed to resemble as much as possible the securities of the Sovereign Herself and the proceeds raised from the debt issuance are to be disbursed to the project special purpose vehicles along traditional project finance criteria to the satisfaction of the Sovereign Guarantor. In addition to structuring the various levels of the financing, Fasken Martineau’s role on behalf of Nalcor Energy included: the preparation of all documentation required for the “Request For Financing” (“RFF”) launched by the promoters into the Canadian and international financial markets, the participation with the clients in the Selection Committee to select the successful proponent under the RFF to act as Lead Arranger for the financing, the drafting of all the documentation from the master trust indenture for the Sovereign guaranteed debt to the project finance credit and security documents, tax structuring and advice, proposing novel real estate rights to accommodate the taking of security, advising on the requisite legislation to give effect to such real estate rights, advising on regulatory matters, review and comment of all revenue producing agreements of the project special purpose vehicles to tailor them to the requirements of the project financing, drafting and settling both the equity support agreements provided by Nalcor Energy and the equity guarantee agreement to ensure completion provided by the Province of Newfoundland and Labrador, drafting and settling all project management and development agreements to ensure the proposed execution of the projects, advice regarding and negotiation of the credit enhancement aspects of the various project contracts with the major contractors and suppliers to the projects, and drafting and negotiating the land use agreements with the Sovereign for the use of the sea bed corridor upon which the subsea transmission cables are to be laid. Fasken Martineau’s team was led by Xeno Martis (Project Finance, Montreal) and included Angela Onesi (Project Finance, Montreal), Félix Gutierrez (Banking, Montreal), Jean Michel Lapierre (Securities, Montreal), Helmut Johanssen (Construction and Commercial, Vancouver), David Little (Commercial and Projects, Vancouver), Daniel Picotte (Commercial and Projects, Montreal), Alain Ranger (Tax, Montreal), Howard M. Carr (Tax, Toronto), André Turmel (Regulatory, Montreal), Ron Ezekiel (Regulatory, Vancouver), Peter Feldberg (Regulatory, Calgary), and Ian Cassie (Real Estate, Vancouver).



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