A project to rationalise the bank debt of Enemalta Corporation, Malta’s state-owned single generator and distributor of electricity, finally came to fruition after a lengthy and intense commercial and governmental process leading to the transaction documents being signed on the last day of 2012.  What the transaction parties dubbed “Project Vault” represented probably both the largest ever transfer of Government immovable property and domestically arranged debt financing in Maltese history.

The final commercial terms of the syndicate banks’ lending package having been sealed earlier, the transaction moved fast to a conclusion once the approval of the House of Representatives required by law for the transfer of property was given early in December, 2012.

Project Vault involved the transfer to a special purpose corporate vehicle of a sizeable portfolio of assets (land and plant) occupied and currently used by Enemalta for the generation and distribution of electrical energy. To finance the acquisition, the SPV raised €318.5m in the syndicated loan market under a facility arranged by Bank of Valletta p.l.c. The property transferred to the SPV under a 45 year deed of emphyteusis (similar in nature to a long lease under English law) was then leased back to Enemalta for the same period, the rental income being applied by the SPV to pay off and eventually settle the loan in accordance with predetermined and calibrated payment schedules. Being strategic assets, Government retained the option to eventually recover legal title to the properties by the effluxion of time or earlier by a discretionary and selective process of reacquisition.

As agent for the syndicated financing, Bank of Valletta evidently required that the assets being financed were placed in a bankruptcy remote special purpose vehicle.  This created a tension between optimising the position of the syndicated creditors under the €318.5m loan and the problem of placing some of the country’s strategic assets in an entity on “autopilot”.  To deal with the latter, a new purpose foundation was created to fulfil the role of the SPV’s sole director, while the foundation’s Board of Administrators and Supervisory Council are required to act by the terms of its Statute strictly to realise the purposes and objectives of Project Vault.

The transaction was challenging for all advisers, encompassing an extremely broad range of legal and financial issues, from the impact on Enemalta’s existing borrowings, national accounting and sovereign immunity concerns, tax and VAT liability issues, to a plethora of civil, commercial and property law questions, including emphyteusis, lease, easements and security such as pledges and hypothecs, as well as carriage of risk and insurance.

Enemalta was advised on Project Vault by PwC, Malta and GANADO Advocates.  Bank of Valletta was advised by Camilleri Preziosi, Advocates.  For further information within the public domain on the SPV structure used in Project Vault, please contact Dr. Adrian Gabarretta (agabarretta@ganadoadvocates.com) or Richard Ambery (rambery@ganadoadvocates.com).