Information on the Issuer
Representative of the Bondholders
Extraordinary Administrator
Independent Engineer
Administration and Use of Bond Proceeds
Collection and Administration of Funds

Traditionally, infrastructure in Chile was developed directly by the government. In the 1980s and 1990s, this changed and the government granted concessions to private entities to develop and operate infrastructure projects. For this purpose, the Infrastructure Concessions Act was passed in 1991. Until recently, most infrastructure concessions were financed through bank loans.

Interested in attracting funds to finance infrastructure projects, the Capital Market Committee and the Public Works Ministry devised an infrastructure bond, which offered an alternative investment instrument to private capitalists and particularly to institutional investors.

In 1995 private investment in infrastructure in Chile totalled US$86 million, compared to US$692 million in 1999. The successful issuance of infrastructure bonds has financed the construction of several highways in Chile.

Experience shows that two kinds of infrastructure bond are generally used: (i) pre-operative bonds, the proceeds of which are used for the construction of the infrastructure project stage, and (ii) operative bonds, used for the operation of a concession.

The following is a summary of the elements that should be included in an indenture for the purpose of issuing infrastructure bonds in Chile, assuming that the proceeds will be used to finance the construction of the project and that the bonds will be repaid during the operation of the concession.

Information on the Issuer

The type of information on the issuer to be provided includes:

  • the details of its legal incorporation;

  • domicile;

  • tax number;

  • corporate purpose;

  • length of incorporation;

  • details of registration in the Securities Registry;

  • approval of the issue by the board of directors and shareholders; and

  • financial information as to the subscribed and paid-in capital, current liabilities and information on previous bond issues.

The amount, terms and conditions of the issue must also be included.

Representative of the Bondholders

The representative of the bondholders is appointed by the issuer in the indenture, represents the bondholders both judicially and extra-judicially in front of the issuer, and has rights and obligations set forth in the law. The representative's role includes:

  • verifying the issuer's compliance with the terms of the indenture;

  • verifying the use of funds;

  • communicating with the bondholders;

  • controlling the payments to be made to the bondholders; and

  • collecting and administering the funds received by the issuer during exploitation of the concession.

The issuer may only appoint a bank, a financial institution or other persons duly authorized by the Superintendency of Securities and Insurance (SVS) to be the representative. The representative is normally a bank or financial institution, authorized to make payments directly to the bondholders.

The representative's remuneration is paid for by the issuer and is subject to VAT (value added tax).

Extraordinary Administrator

The extraordinary administrator is also appointed by the issuer, and again must be a bank, financial institution or other person duly authorized by the SVS. The extraordinary administrator receives the proceeds of the bond issue on behalf of the issuer and periodically makes funds available to the issuer upon compliance with the required conditions. It is also in charge of investing the funds according to the issuer's instructions under the investment policy set forth in the indenture and legal limitations as described below.

Its functions cease when the Ministry of Public Works receives the completed project and any remaining funds are transferred to the representative.

The extraordinary administrator's remuneration is also paid by the issuer and is subject to VAT.

Independent Engineer

The independent engineer must:

  • approve the construction contract and any payments and disbursements made by the issuer prior to the indenture;

  • evaluate the real cost of advancement of the construction works;

  • approve the construction cost budget; and

  • approve the monthly construction cost budget according to which the extraordinary administrator shall disburse funds.

The independent engineer's opinion is mandatory for the extraordinary administrator. His or her fees are paid by the issuer and are subject to VAT.

Administration and Use of Bond Proceeds

The proceeds of the bond issue are received and administered by the extraordinary administrator, through a bond placement collection account. This account also receives any amounts payable by the constructor (the construction company that is developing the infrastucture project) and by the issuer's shareholders (ie, capital contributions and extraordinary contributions to cover excess costs).

A custodian must be appointed in the indenture to maintain the instruments and securities in which the extraordinary administrator invests these funds.

The indenture must regulate in detail the use of the funds under administration, specifying the conditions under which they will be provided to the issuer to cover the costs and expenses of the project. Disbursements may be suspended if the issuer does not comply with the required conditions (as attested to by the independent engineer). In addition, the constructor may be required to make funds available to the extraordinary administrator if the independent engineer determines that there are construction costs in excess of those contemplated in the budget.

Permitted investments
Permitted investments include fixed-income instruments classified with an investment rate at least equal to that of the issue, as determined by two private rating firms (registered with the SVS). Also acceptable are fixed-income instruments issued or guaranteed by the state until total extinction, and whose maturity may not exceed the construction budget. Interest, benefits and capital gains accrued by these investments shall be for the benefit of the bondholders if (i) conditions for disbursement are not complied with, or (ii) the legal pledge is made effective. However, these benefits may not exceed those agreed to in the indenture.

Regulation of investments in the indenture should normally include diversification provisions. Investments must be made in Chile and they may only be made in Chilean pesos, in instruments denominated in UF (an indexed, Chilean-peso-denominated monetary unit) or US dollars.

Collection and Administration of Funds

During this period, the representative of the bondholders is in charge of collecting and administering the revenues arising from the exploitation of the concession.

These amounts are deposited in different accounts (eg, VAT, pledged income, income for expenses, funds for major maintenance and free disposition). Investments are subject to the same regulations as those made by the extraordinary administrator. The representative must deposit in the pledged income account:

  • amounts arising from the exploitation of the concession (on a daily basis);

  • any balance existing in the bond placement collection account; and

  • any payment made by the state or the ministry to the issuer (other than recovery of VAT).

These must be deposited in such amounts as are necessary to complete payment of the corresponding annual coupon of the bonds. Once this amount is completed, excess revenues are then deposited into other accounts.


During the construction period, the funds deposited in the bond placement collection account under the administration of the extraordinary administrator, are pledged in favour of the bondholders. This pledge terminates upon receipt by the ministry of public works of the project.

These funds may not be subject to any other lien or encumbrance.

The issuer may constitute a special pledge in favour of the bondholders over (i) the right to the public concession, and (ii) a percentage of the daily revenues arising from the exploitation of the concession (as necessary to cover the annual amount of the bond coupons).

The indenture may provide that the issuer is authorized to incur other indebtedness without prior authorization from the representative, provided repayment and guarantees only affect those revenues that exceed the income necessary to repay the bonds.

For further information on this topic please contact Gonzalo Delaveau at Guerrero, Olivos, Novoa y Errazuriz Ltda by telephone (+58 2 953 9244) of by fax (+58 2 953 7777) or by e-mail ([email protected]).

The materials contained on this web site are for general information purposes only and are subject to the disclaimer.