IDB, PE Fund Go Long Brazil Ethanol

The IDB has apparently taken a long-term view of its investment in CNAA, a major startup in Brazil’s sugar and ethanol sector. Despite a wave of negative news regarding some prominent companies in the sector, including one of CNAA’s main investors and former parent company SantelisaVale, the IDB has signed a long-term commitment. It joins energy private equity (PE) fund Carlyle-Riverstone in extending a $145m 15-year package for the company, many of whose peers are buckling under the weight of debt.

The IDB agreed the CNAA loan at Libor plus 450bp last month. It marks a record tenor for the sector, and a rate that is barely above what some large 10-year project financings are now seeking. “It was very good of the IDB to take this long view with us,” a thankful Jair Steola, CNAA’s CFO, tells LatinFinance. Asked if the multilateral should have demanded a higher margin given today’s market, Steola says: “They’re view is probably that the market will eventually return to these levels.” An IDB official says the multilateral, which initiated the process in the first half of 2008, was reassured by Riverstone’s beefy equity commitment to the company following the cancelation of a planned B loan via BNP Paribas last year. Riverstone committed $275m in a 15-year hybrid loan at Libor plus 375bp, which can be converted by CNAA into equity starting in the coming months. The move substantially improves the company’s debt to equity ratio and bolstered the rationale for the IDB 15-year loan, says the multilateral executive. A 15-year tenor in today’s market is an anomaly, and almost makes for an equity-like commitment, says a Brazil-based syndications banker. He adds that there is no chance a commercial loan could be done at such a rate or tenor. BNDES may provide another BRL400m to CNAA, while the IDB may weigh in with an extra $80m for a third sugar mill.

LatinFinance, March 6, 2009