The Board of Directors of the Central Bank of Paraguay (Banco Central del Paraguay) (the "BCP"), through Resolution No. 17 dated October 7, 2022 (the "Resolution"), established special provisions for borrowings for the financing of long-term investment projects. In addition, the Resolution establishes new criteria, requirements, and definitions relevant to this type of financing to be granted by financial institutions in Paraguay (the "Financial Institutions"). The purpose of this new regulation is to encourage and support the financing of projects structured under the project finance modality by the Financial Institutions so that they can play an active role in the funding of this type of projects, especially considering their impact on the country's economy.

It is worth mentioning that one of the most used structures for the financing of sizeable long-term investment projects is the one known as project finance, whose main characteristics are:

1. The repayment of the loan is mainly based on the project's own capacity to generate the necessary cash flows for such repayment;
2. Recourse against the borrower is limited;
3. The existence of special purpose vehicles (SPV) incorporated for the sole purpose of carrying out the project;
4. The contributions of the sponsor of the project;
5. The granting of certain limited guarantees;
6. The execution of certain types of contracts that ensure the sustainability and profitability of the project;

The most important concepts established in the Resolution are as follows:

• Definition and establishment of the characteristics that long-term financing must have to be considered as project finance, which consist of:

a. The existence of a borrower company with the sole purpose of developing the specific project (the "Project"), and whose main assets and business are constituted by such Project (the "Borrower"). The latter may be either a commercial company or a legal structure (a trust);

b. The assets and revenues of the Project constitute the principal and sometimes the only security for the financing. Recourse against the Borrower (i) is for amounts limited to the cash flows of the Project, and (ii) for collateral pledged over the assets of the Project;

c. Limitation of Recourse:

1. Recourse against the sponsors, shareholders or partners is limited to their capital contribution and their economic rights according to their participation in the Borrower;
2. The scope of the recourse against the Borrower is limited to the amount of the payments received by the Borrower;

3. Recourse against the Borrower or a member thereof, in general, is limited solely to claims for damages for the breach of any obligation; and,
4. The lack of authority of the creditor to initiate a proceeding for the liquidation or dissolution of the Borrower, the appointment or management of the appointment of receivers, trustees or officers to oversee or administer the Borrower or any of its assets, except for assets pledged as collateral.

d. The Project must be analyzed and treated from its beginning as a project finance by the Financial Institution; and 

e. With respect to foreign financing, the amount financed by the Financial Institution to the Borrower must not exceed 20% of the total resources obtained for the project finance.

• Establishment of the requirements that the Financial Institutions must comply with prior to the granting of financing under the project finance modality, which are as follows:

a. Evaluation and determination of the technical, financial, environmental, legal, and technological feasibility of the Project, based on credit risk and cash flows, where the Financial Institution expects, with a high degree of confidence or certainty, that the funds will be invested in the Project, that it will be completed in a reasonable time, within the foreseen deadlines and economic budgets, and that once completed it is capable of producing sufficient resources to repay the loan. Both the Project and its analysis must be duly supported and formally documented;

b. Obtaining additional guarantees during the construction phase of the Project, which will be raised only after completion of the work, verification of the Project's operation and its production capacity as foreseen in the feasibility studies and/or other contractual agreements; and,

c. To have the formal approval of the Board of Directors of the Financial Institution for the granting of this type of financing, on a case-by-case basis.

• Limitation on the amount of credits and contingencies that a Financial Institution may grant within the framework of project finance, not exceeding, directly or indirectly, an amount equivalent to 20% of the effective net worth of such institution. This limit may be increased up to 30%, provided that there is sufficient collateral accepted by the Superintendency of Banks (the "SIB") to support the transaction. In turn, the guarantees accepted by the SIB are:

1. Mortgage Guarantees, attributable up to 70% of their appraised value;
2. Pledged collateral, imputable up to 50% of the appraised value;
3. Guarantees, sureties, and other obligations included in the ALADI Agreement on Reciprocal Payments and Credits;
4. Warrants on different products according to the computable value in accordance with the Rules for Classification of Assets, Credit Risks, Provisions, and Interest Accruals; or
5. Forestry Assets Security (Derecho Real de Superificie Forestal) up to 80% of its verifiable quotation value.

• Not considering as a single risk unit the sponsors, shareholders, or partners of companies that carry out the Projects or the beneficiaries of trusts set up for Projects, which normally must be considered by the Financial Institutions as individuals and/or legal entities directly or indirectly related to such Project.

This is perhaps one of the most relevant points of the Resolution, since it will allow Financial Institutions to evaluate the sponsors, the Borrower or SPV and the Project as a risk unit different and separated from the other activities and businesses of the same economic group, which in turn will allow raising the lending limit established by banking regulations for Financial Institutions.

• Finally, the obligation to make available to the Superintendency of Banks, at all times, all documentation that supports and sustains the granting of financing under the project finance.