|Innovative Aspects:||In May 2001, AES Tietê, headquartered in Sao Paulo, Brazil used a new risk mitigation instrument and an adapted instrument (both provided through OPIC) for a US$ 300 million bond issue on the international capital market in order to refinance debt related to the take over of the Companhia de Geraçao de Energia Eletrica Tietê by AES in 1999. The innovative product used to enhance the transaction was an OPIC Devaluation Policy ("Foreign Exchange Liquidity Facility") to protect against currency devaluation with a maximum coverage of US$ 30 million structured as a revolver. The adapted risk mitigation product used was an OPIC Convertibility Policy (an adapted OPIC Political Risk Insurance) with a maximum coverage of US$ 85 million with re-instateable limits. The transaction has been the first electric power project financing in a below-investment grade country to achieve an investment-grade rating. It had at that time the longest tenor ever achieved by a Brazilian corporate issuer and was priced at a level equivalent to 237 bp less than Brazilian sovereign debt.|
The Certificates of a total amount of US$ 300 million with a 10 year average life time and a 15 year final maturity, amortizing throughout, were issued by the Tietê Certificates Grantor Trust, a New York grantor trust, and sold pursuant to Reg. S and Rule 144A without registration rights. The use of such a trust in an OPIC-insured transaction permitted the sale of a portion of the issue to foreign investors (so long as more than 50% of the issue is sold to U.S. investors). With the proceeds of the issue, the Tietê Certificates Grantor Trust purchased a note (“the Note”) from AES IHB Cayman, Ltd. (“IHB”), a special purpose company established in the Cayman Islands. The proceeds from the sale of the Note were used by IHB to make a zero-interest loan (“an Inter-company Loan”) to each of AES’ Brazilian holding companies which owned shares in Tietê. The proceeds of the Inter-company Loans were used by the Brazilian holding companies to repay their respective acquisition debt.
Certificates were initially rated Baa3 by Moody's and BBB- by Fitch. As a result of conditions in the Brazilian electric sector and the effect of macroeconomic factors on AES Tietê's ability to distribute cash, the certificates were downgraded, but more recently, ratings recovered to some degree. In 2006, the certificates were rated B+ by Fitch and B1 by Moody's.
AES Tietê is a ten dam hydroelectric generating company located in the State of Sao Paulo, Brazil. At the privatization auction for Tietê, AES acquired approximately 60% of Tietê’s voting shares and 14% of its non-voting shares, using a Brazilian holding company to make the purchase. In a subsequent transaction, using a second Brazilian holding company, AES acquired an additional 10% of Tietê’s voting shares. The two Brazilian holding companies were, in turn, owned by AES Tietê Holdings, Ltd. (“TH”), a Cayman Islands holding company and wholly-owned subsidiary of AES. AES Tietê has been granted the right to operate the dams pursuant to a 30 year Federal concession agreement. The Company is selling the majority of the generated power under contract to Brazilian electric distribution companies, especially the AES affiliate Eletropaulo, the electric distribution company for the City of Sao Paulo and surrounding municipalities.