Project Finance: Practical Case Studies

InterGen affiliate; and ICA Fluor Daniel. ICA was responsible for local content. The GECC
Capital Markets Group co-arranged the debt financing with InterGen. The CFE becomes the
lessee of the plant after construction and testing.

Legal structure of project entity

Samalayuca II was structured as a BLT project because, until December 1992, build-own-
operate (BOO) projects were not permitted under Mexican law. The project’s BLT structure
accommodates a construction period, similar to most project financings, and a 20-year lease
period that is comparable to a highly structured, on-balance-sheet corporate financing rather
than a project financing. The CFE has an unconditional obligation to make lease payments,
whether or not the plant is operating. At the end of the lease period the ownership of the pro-
ject is transferred to the Mexican utility. A Mexican business trust is the owner of the plant,
the lessor of the plant to the CFE and the obligor of the project debt. The project structure is
illustrated in Exhibit 7.1.
All the financing documents involving the trust, the commercial banks, US Eximbank
and the IDB are in English, and were negotiated in New York. On the other hand, the lease,
the trust and annexes to the trust are governed by Mexican law. The CFE would not accept
having them governed under New York law. Negotiations to create these documents were
conducted in Spanish at the CFE’s offices in Mexico City. Although there have been English
translations, the original enforceable versions of lease and trust documents are in Spanish.
This presented problems, because a number of legal terms in the Spanish-language docu-
ments are less than exact translations of English-language terms that exist in the context of
English and US law, but that do not exist in Spanish or in Mexican law. An example concerns
the English adjective ‘material’: the Spanish words importanteand substantialedo not have
the same meaning in the context of Mexican law.

POWER PLANT

Exhibit 7.1

Project participant structure

MEXICAN

BUSINESS

TRUST

40%

20% of capital

80% of capital

30%

10%

20%

Contractor

GE Power Systems

Bechtel Power Corp

ICA/Fluor-Daniel

GE Capital

Construction

lenders

Term lenders

Lessee CFE

El Paso Intergen

Compania Samalayuca II SA

de CV

(Mexican corporation)

ICA