The region requires far more investment in infrastructure than development banks alone can provide.
Between 2016 and 2030, Latin America and the Caribbean will need to invest an estimated $7 trillion in infrastructure—about 40 percent more than the region spent during the previous 15 years—to address gaps and make improvements, according to a study by the McKinsey Global Institute.
That is why it is so important for IDB Invest to be able to mobilize additional resources and expand the pool of funds available for investment in the private sector.
We not only put our own money to work, in other words, but we bring other lenders to the table and structure investments that work for them. This makes more financing available for our clients and enables us to make a bigger impact on development. Because of our deep roots and broad expertise in Latin America and the Caribbean, we can provide access to new opportunities for investors looking to share in the region’s growth. With 26 member countries in the region—ranging in size from Barbados to Brazil—we have deals in the pipeline in many different countries and across different sectors.
Our expertise is in putting together the right projects with the right investors to suit different time horizons, sector priorities, appetites for risk and expectations of returns. We work with a range of market players, including:
- International commercial banks.
- Regional commercial banks.
- Institutional investors such as insurance companies and pension funds.
- Social impact investors.
- Sovereign wealth funds.
Working with IDB Invest can provide advantages to both borrowers and outside investors. For borrowers, access to an A/B loan—one that includes financing from both IDB Invest and other investors—may mean they can complete their entire financial package in one place, often with longer tenors than with regular bank loans.
For investors, participating in an IDB Invest loan can provide certain financial advantages and mitigate their risks. More broadly, the tangible and intangible assets we offer—a strong portfolio, deep technical expertise, a presence in the field and a longstanding commitment, as part of the IDB Group, to create social and environmental value and sustainable economic development—can give investors the confidence they need to operate in the region.
A/B Loans
- The A-loan is funded by IDB Invest from its ordinary capital and is typically longer in tenor than the B-loan.
- The B-loan is funded by market players through the sale of participations.
- There is one loan agreement. IDB Invest is the lender of record and administers the entire loan.
- IDB Invest and participants share the project risk. Loans are not guaranteed by IDB Invest.
- The participation structure allows participants to benefit from IDB Invest’s privileges and immunities, including preferred creditor status.
B Bonds
In this type of investment, the loan agreement with the borrower is structured in much the same way as a standard A/B loan. IDB Invest is the lender of record and administers the entire loan, and IDB Invest and the other investors share the project risk. In this case, though, the B-lender is a special purpose vehicle (SPV) or trust that funds itself by selling securities to institutional investors.
This structure helps to reach a broader investor base by including firms that can invest only in securities, not regular loans. One benefit is that notes may obtain higher credit rating because of IDB Invest’s preferred creditor status. Also, such investments tend to have a longer tenor than B-loans.
- IDB Invest provides an A/B loan to the borrower.
- IDB Invest shares its preferred creditor status with the B-lender through a participation agreement.
- The B-lender is a special purpose vehicle that issues securities to be sold to institutional investors.
- The SPV passes through the interest and principal repaid by the borrower on the B-loan to the noteholders.
Paralell co-financing
IDB Invest also leverages funds by acting as an arranger, identifying investments, structuring deals and negotiating loan documents with borrowers, in coordination with other lenders.
- Each lender has a direct claim on the borrower.
- Co-lenders sign a common terms agreement with the borrower, which defines the overall terms of the transaction.
- Each co-lender may enter into a supplemental agreement with the borrower to address any terms specific to the lender.
- The relationship between the lenders is governed by an inter-creditor agreement.
- IDB Invest does not share its preferred creditor status with its co-lenders.
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An expert in the distribution of complex corporate, structured and project finance transactions, Jozef Henriquez is Head of the Resource Mobilization team of IDB Invest. Jozef, a native from Curaçao, is a recognized industry leader and a regular speaker at LatinFinance and Euromoney events.
He led the development of the “B-bond” product and the structuring of the US$2 billion China Co-financing Fund, both of which represent new ways of mobilizing institutional investor funds. He has solid transactional experience across infrastructure, corporate, and financial intermediaries segments in Latin America and the Caribbean.
Before joining the IDB Invest, Jozef was a Director at ABN AMRO Bank N.V., where he was responsible for the origination and distribution of syndicated loans in the Integrated Energy and Leveraged Finance sectors for the Americas. He holds a Bachelor of Business Administration degree from the University of Notre Dame and a Master of Management degree from Northwestern University’s Kellogg School of Management.
Contact: jozefh@idbinvest.org