Uruguay - Power and Telephone Project : Loan 0030 - Guarantee Agreement - 1 - Conformed

LOAN NUMBER 30 UR Guarantee Agreement BETWEEN REPUBLICA ORIENTAL DEL URUGUAY AND INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT DATED AUGUST 25, 1950 PaEss OF BYRON S. ADAMS. WASHINGTON, D. C. TABLE OF CONTENTS GUARANTEE AGREEMENT Article Number Page I .......................................1 II.......................................1 III............................ ........... 3 IV ....................................... 6 V ....................................... 6 VI ....................................... 7 VII ....................................... 8 VIII ... .................................. 9 EXPLANATORY LETTERS Bank's letter re negative pledge policy.............. 13 Guarantor's letter re acceptance of negative pledge principle ................................. 14 Letter re negative pledge in Guarantee Agreement... 16 Ouarantee Zgreement AGREEMENT, dated August 25, 1950, between REPUB- LICA ORIENTAL DEL URUGUAY (hereinafter called the Guar- antor) and INTER-NATIONAL BANK FOR RECONSTRUCTION AND DEvELOPMENT (hereinafter called the Bank). WHEREAS by an agreement of even date herewith between the Bank and Administraci6n General de las Usinas Elc- tricas y los Telefonos del Estado (hereinafter called the Borrower), which agreement and the Schedules therein re- ferred to are hereinafter called the Loan Agreement, the Bank has agreed to make to the Borrower a loan in the ag- gregate principal amount of thirty-three million dollars ($33,000,000), or the equivalent thereof in other currencies, on the terms and conditions set forth in the Loan Agree- ment, but only on condition that the Guarantor agrees to guarantee such loan and the obligations of the Borrower in respect thereof; and WHEREAS the Guarantor, in consideration of the Bank's entering into the Loan Agreement with the Borrower, has agreed to guarantee such loan and the obligations of the Borrower in respect thereof; Now THEREFORE the parties hereto hereby agree as fol- lows: ARTICLE I Unless the context shall otherwise require, terms used in the Loan Agreement shall, wherever used in this Guaran- tee Agreement, have the respective meanings which they have when used in the Loan Agreement. ARTICLE II Without limitation or restriction upon any of the other covenants on its part in this Guarantee Agreement con- tained, the Guarantor hereby unconditionally guarantees, 2 as primary obligor and not as surety merely, the due and punctual payment of the principal of, and the interest, com- mitment charge and service charge, if any, on, the Loan, the principal of, interest on, and premium, if any, on the redemption of the Bonds, and the punctual performance of all the covenants and agreements of the Borrower, all as set forth in the Loan Agreement and in the Bonds. It is further agreed by the Guarantor that its obligations under any covenants and agreements on its part in this Guaran- tee Agreement are not subject to any prior notice to, de- mand upon or action against the Borrower or to any prior notice to or demand upon the Guarantor with regard to any default by the Borrower in respect of any of its obligations set forth in the Loan Agreement or in the Bonds. No ex- tension of time to the Borrower, delay in exercising or omis- sion by the Bank to exercise any right against the Bor- rower in respect of the performance of any of its obliga- tions under the Bonds or the Loan Agreement, and no fail- ure of the Bank or of any holder of the Bonds to give any notice or to make any demand or protest whatsoever, or strictly to assert any right or pursue any remedy against the Borrower in respect of the Bonds or of the Loan Agree- ment, and no action undertaken to enforce any rights avail- able to the Bank under the Loan Agreement or the Bonds and no agreement by the Bank and the Borrower to any modification of the Projects or of the provisions of the Loan Agreement and no failure of the Borrower to comply with any requirement of any law, regulation or order of the Guarantor or any of its political subdivisions or Agencies, -3hall in any way terminate, diminish or limit the uncondi- tional guarantee of the Guarantor hereunder, it being the intent of the parties hereto that the obligations of the Guar- antor shall not be discharged except by performance and then only to the extent of such performance. No delay by the Bank in exercising or omission of the Bank to exercise any right under this Guarantee Agreement shall impair any 3 such right or be construed to be a waiver thereof or a waiver of or acquiescence in any default by the Guarantor under this Guarantee Agreement; nor shall any action by the Bank in respect of any such default or in respect of the waiver of any such default affect or impair any such right in respect of any other or subsequent default on the part of the Guarantor. ARTICLE III SECTION 1. In entering into this Guarantee Agreement the Bank and the Guarantor recognize that the purpose of the Loan can be best accomplished if both parties cooperate fully, guided by a spirit of mutual understanding, and if each party affords to the other a full opportunity to have information on all matters relating to the Loan and to the Guarantee Agreement. To that end each shall furnish to the other all such information as shall be reasonably re- quested with respect to the general status of the Loan and to the financial and economic condition of the Guarantor in- sofar as it may be related to said general status of the Loan. Appropriate opportunities will be extended to rep- resentatives of the Bank to visit the territories of the Guar- antor, in a manner that shall be consistent with the spirit and purposes of the Loan. Guided by this same spirit of mutual cooperation, the Bank and the Guarantor will from time to time exchange views with regard to matters relat- ing to the purposes of the Loan and the maintenance of the service thereof. In furtherance of such mutual understand- ing the Guarantor will promptly inform the Bank of any condition that may interfere with the accomplishment of the purposes of the Loan or the maintenance of the service thereof; and if any development shall occur which may sub- stantially affect the external economic or financial position of the Guarantor, including any proposal which would in- volve the incurring of any substantial external debt, the Guarantor in a spirit of mutual cooperation will afford the 4 Bank a reasonable opportunity to exchange views with the Guarantor with respect thereto. SECTION 2. The Guarantor covenants that except as the Bank shall otherwise agree in writing, if any charge (in- cluding any mortgage, pledge, lien, privilege or priority) shall be created on any property, assets, revenues or re- ceipts of the Guarantor or of the Banco de la Repiblica Oriental del Uruguay as security for the payment of any external debt, then by the creation thereof such charge, or an equivalent charge satisfactury to the Bank, will equally and ratably secure the payment of tbe principal of, and the interest and other charges on, the Loan and the Bonds, and at the time of the creation of any such charge, express pro- vision will be made to that effect; provided, however, that this Section shall not apply to any of the following: (a) to the creation of any such charge on any property purchased, at the time of the purchase, solely as se- curity for the payment of the purchase price of such property; or (b) to any pledge of commercial goods to secure debt maturing not more than one year after its date and to be paid out of the proceeds of sale of such com- mercial goods; or (c) to any pledge by the Banco de la Repiblica Oriental del Uruguay of any of its assets in the ordinary course of its banking business to secure any indebt- edness maturing not more than one year after its date. SECTION 3. The Guarantor covenants that the principal of and interest on the Loan and the Bonds, the premium on the redemption of the Bonds, as specified in the Loan Agree- ment and the Bonds, and the commitment charge and ser- vice charge on the Loan, as specified in the Loan Agree- 5 ment, will be paid without deduction for and free of any taxes and any other fiscal charges of any nature now or at any time hereafter imposed by the Guaran'or or by any authority with power to impose such taxes or charges and will be paid free from all restrictions of the Guarantor and of any other authority capable of imposing restrictions. This Section shall not apply to taxation of payments made under the provisions of any Bond to a holder,V thereof other than the Bank when such Bond is beneficially owned by an individual or corporate resident of the Guarantor. SECTION 4. The Gnran.toi. cove1ants that this Guaran- tee Agreement, the Loan Agrement and the .Bonds shall be free of any issue, stamp or other tax imposed by the Guar- antor or any authority with power to impose such taxes. SEcTION 5. The Guarantor covenants that it will take or cause to be taken all reasonable action which shall be neces- sary in order to enable the Borrower to perform the cove- nants, agreements and obligations set forth in the Loan Agreement. SECTION 6. (a) Except as the Bank shall otherwise agree in writing, if during any fiscal year of the Borrower the net increase in its outstanding indebtedness (other than indebtedness incurred for the purpose of capital additions or improvements the proceeds of which have not been uti- lized and are then held in reserve for such purpose) shall be in excess of the increase during such year in its expen- ditures or other acquisitions for its property accounts, the Guarantor will within 150 days after the close of such fiscal year provide the Borrower in a manner which will not in- crease the outstanding indebtedness of the Borrower with the amount of such excess. (b) Upon the making of such arrangements, the Guaran- tor will forthwith notify the Bank in writing of the details 6 of the arrangements made to provide the Borrower with the amount required under this Section. SECTION 7. The Guarantor will in due time take all ac- tion on its part to be performed in order to carry out the local currency financing plan set forth in Schedule 5 to the Loan Agreement. ARTICLE IV SECTION 1. The Guarantor agrees to endorse its guar- antee hereunder on the Bonds to be executed by the Bor- rower and delivered in accordance with Article V of the Loan Agreement. Such guarantee shall be substantially in the form set forth in Schedules 3-A and 3-B to the Loan Agreement, respectively. SECTION 2. The guarantee on the Bonds shall be signed in the name and on behalf of the Guarantor by its author- ized representative or representatives. The signature of any such representative may be a facsimile signature, if such guarantee is also countersigned manually by an au- thorized representative of the Guarantor. If any author- ized representative of the Guarantor whose manual or fac- simile signature shall be affixed to any such guarantee shall thereafter cease to be such authorized representative, the Bond on which such guarantee is endorsed may neverthe- less be delivered under the Loan Agreement and such guar- antee shall be valid and binding on the Guarantor as though the person whose manual or facsimile signature shall have been affixed to such guarantee had not ceased to be such au- thorized representative. ARTICLE V SECTION 1. No holder of any Bond other than the Bank shall by virtue of being the holder thereof be entitled to exercise any of the rights conferred, or be subject to any of the conditions or obligations imposed, upon the Bank 7 under this Guarantee Agreement except as shall be other- wise provided in such Bond or in the guarantee of the Guarantor endorsed thereon. SECTION 2. The Guarantor shall furnish to the Bank within a reasonable time, not to exceed 60 days, such in- formation and execute such applications and other docu- ments as the Bank shall reasonably request from time to time in order to enable the Bank to sell any of the Bonds in any country, or to list any of the Bonds on any securities exchange, in compliance with applicable laws and regula- tions. ARTICLE VI SECTION 1. The respective rights and obligations of the parties hereto under this Guarantee Agreement and under the Bonds shall be valid and enforceable in accordance with their terms, anything in any statute, law or regulation of any nation or state or political subdivision thereof to the contrary notwithstaiiding. Neither of such parties shall be entitled in any proceeding under this Article to assert any claim that any provision of this Guarantee Agreement or of the Loan Agreement or of the Bonds is invalid or unen- forceable because of any provision of the Articles of Agreement of the Bank or for any other reason. SECTION 2. Any controversy between the parties to this Guarantee Agreement and any claim by either party to this Guarantee Agreement against the other party thereto aris- ing under this Guarantee Agreement or the Bonds which shall not be determined by agreement of such parties shall be submitted to and determined by arbitration by an Ar- bitral Tribunal in accordance with the provisions of Loan Regulations No. 1 of the Bank, dated May 9, 1947, a copy of which has been furnished to the Guarantor. The par- ties to this Guarantee Agreement accept an.I agree to the provisions of said Loan Regulations No. 1 with the same force and effect as if fully set forth herein; provided, how- 8 ever, that the Bank shall not be entitled to enter any judg- ment against the Guarantor in any court for the enforce- ment of any award rendered pursuant to said Loan Reg-ula- tions No. 1, or to enforce by execution against the Guaran- tor any judgment entered upon any such award or order made in any proceeding to enforce any such award, except as any such remedy of the Bank against the Guarantor may be authorized under Uruguayan law. ARTIOLE VII SECTION 1. Any notice, demand or request required or permitted to be given or made under this Guara ntee Agree- ment shall be in writing and shall be deemed to have been duly given or made when it shall be delivered in writing or by telegram, cable or radiogram to the party to which such notice, demand or request is required or permitted to be given or made at its address hereinafter specified, or at such other address as such party shall have designated by notice in writing to the party giving or making such notice, demand or request. The addresses so specified are: (a) For the Guarantor: Repiblica Oriental del Uruguay, Ministerio de Hacienda, Calle Colonia 1089, Montevideo, Uruguay; or Repiblica Oriental del Uruguay, Embassy of Uruguay, 1025 Connecticut Avenue, N. W., Washington 6, D. C. (b) For the Bank: International Bank for Reconstruction and Development, 1818 H Street, N. W., Washington 25, District of Columbia, United States of America 9 SECTION 2. This Guarantee Agreement may be executed in several counterparts, each of which shall be an original and all collectively but one instrument. SECTION 3. Any action required or permitted to be taken, and any documents required or permitted to be executed under this Guarantee Agreement on behalf of the Guaran- tor may be taken or executed by its Minister of Finance or any person thereunto authorized in writing by him. Any modification or amplification of the provisions of this Guar- antee Agreement may be agreed to on behalf of the Guar- antor by written instrument executed on behalf of the Guarantor by its Minister of Finance or any person there- unto authorized in writing by him; provided, that in the opinion of the Council of Ministers, such modification or amplification is reasonable in the circumstances and at the same time is to the advantage of the Guarantor. The Bank may accept the execution by such Minister of Finance or such other person of any such instrument as conclusive evidence that, in the opinion of such Council of Ministers, any modification or amplification of the provisions of this Guarantee Agreement effected by such instrument is rea- sonable in the circumstances and at the same time is to the advantage of the Guarantor. SECTION 4. The Guarantor shall furnish to the Bank sufficient evidence of the authority of the person or persons who will, on behalf of the Guarantor, take any action or execute any documents required or permitted to be taken or executed by the Guarantor pursuant to any of the pro- visions of this Guarantee Agreement or the Loan Agree- ment and the authenticated specimen signature of each such person. ARTICLE VIII SECTION 1. This Guarantee Agreement shall come into force and effect on the Effective Date. If, pursuant to Section 3 of Article XI of the Loan Agreement, the Bank 10 shall terminate the Loan Agreement, the Bank shall promptly notify the Guarantor thereof, and upon the giv- ing of such notice, this Agreement and all obligations of the parties hereunder shall forthwith cease and determine. SECTION 2. If and when the entire principal amount of the Loan shall have been paid or caused to be paid by the Borrower or the Guarantor (or shall have been cancelled), together with the redemption premium, if any, on the re- demption of all Bonds which shall have been called for re- demption and all interest and other specified charges which shall have accrued on the Loan and the Bonds, this Guaran- tee Agreement and all rights and obligations of the parties hereto shall forthwith terminate. IN WITNESS WHEREOF the parties hereto have caused this Guarantee Agreement to be signed in their respective names by their representatives thereunto duly authorized, at Washington, District of Columbia, United States, as of the day and year first above written. REPUBLICA ORIENTAL DEL URUGUAY By ALBERTO DOMiNGUEZ-CAMPORA INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By R. L. GARNER Vice President EXPLANATORY LETTERS 13 Bank's letter re negative pledge policy August 25, 1950 Repiblica Oriental del Uruguay Embassy of Uruguay, 1025 Connecticut Avenue, N. W., Washington 6, D. C. Gentlemen: In the course of our negotiation of the Guarantee Agree- ment relating to the proposed loan to Adninistraci6n Gen- eral de las Usinas Elctricas y los Telefonos del Estado (UTE) you have requested assurances from us that should the Bank at some time in the future change its policy with regard to the so-called negative pledge clause by eliminat- ing said provision, it would give consideration to revising the negative pledge clause in the Guarantee Agreement presently under negotiation. This letter will confirm that we consider it inappropriate to give you such an assurance, since it is the Bank's policy to require a negative pledge in all agreements except in unusual cases, and we assure you that the Bank has no intention of changing such policy. Very truly yours, INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By R. L. GARNER Vice President 14 Guarantor's letter re acceptance of negative pledge principle August 25, 1950 International Bank for Reconstruction and Development 1818 H Street, N. W. Washington 25, D. C. Gentlemen: The Uruguayan Government takes pleasure in acknowl- edging receipt of the Bank's communication of even date which reads as follows: "In the course of our negotiation of the Guarantee Agreement relating to the proposed loan to Administra- ci6n General de las Usinas Elctricas y los Telefonos del Estado (UTE) you have requested assurances from us that should the Bank at some time in the future change its policy with regard to the so-called negative pledge clause by eliminating said provision, it would give consideration to revising the negative pledge clause in the Guarantee Agreement presently under ne- gotiation. " This letter will confirm that we consider it inappro- priate to give you such an assurance, since it is the Bank's policy to require a negative pledge in all agree- ments except i' unusual cases, and we assure you that the Bank has no intention of changing such policy." By virtue of the statements made by the Bank in the above communication, the Government of Uruguay is pleased to confirm that the Bank's policy regarding the so- called negative pledge clause gives us confidence that the Bank does not intend to have privileged borrowers and that, on the other hand, so far as the Bank is concerned, it wishes that there should not be creditors enjoying a more advantageous security position than the Bank itself has. 15 We 7ave accepted this principle of the Bank's policy which is embodied in the negative pledge concept, although we do not believe that occasion for the application of the principle will occur, in practice, during the life of the Agreement, since it is the policy of my Government that no public external debt be secured by the creation of any mortgages or pledges, and within the limits of its consti- tutional powers, it is its purpose to continue this policy under normal conditions so far as they can be foreseen. Very truly yours, REPUBLICA ORIENTAL DEL URUGUAY By ALBERTO DomiNGUEZ-CAMPORA Authorized Representative 16 Letter re negative pledge in Guarantee Agreement Article III, Section 2 August 25, 1950 Repiblica Oriental del Uruguay Embassy of Uruguay 1025 Connecticut Avenue, N. W. Washington 6, D. C. Gentlemen: In entering into the Guarantee Agreement of even date between the Repiblica Oriental del Uruguay and this Bank, you have asked us to explain the reasons which have led the Bank to include in such Agreement the so-called negative pledge clause which is set forth in Article III, Section 2 thereof and to confirm our agreed understanding with re- spect to certain aspects thereof. As you are aware, the International Bank is a coopera- tive institution whose members are sovereign states which have joined together to further their mutual interests. Each member of the Bank shares the risk of each loan made by the Bank since, to the extent that a default in the payment of any loan shall impair the ability of the Bank to meet its obligations for funds borrowed by it, the Bank must call on the unpaid subscription of all its members to make good the deficiency. It is for that reason, among others, that the Articles of Agreement of the Bank prescribe that, in mak- ing or guaranteeing loans, the Bank shall act prudently not only in the interests of the Borrower, but also in the inter- ests of the members as a whole and "shall pay due regard to the prospects that the Borrower, and, if the Borrower is not a member, that the Guarantor, will be in position to meet its obligations under the loan." The Bank, in imple- menting this provision of its Articles, has thought that its responsibilities require it to adopt certain minimum re- quirements to be embodied in loan and guarantee agree- ments between it and its members. The so-called negative pledge clause is one of these minimum requirements. 17 Although the Bank, in making loans to borrowers who are not governments and therefore not themselves members of the Bank, has on occasion received security for the bor- rowers' obligations, the Bank's general policy is not to ask for security for the obligation of any member government as borrower or as guarantor. However, since the Bank must in the last analysis look to the member for the servic- ing in foreign currency of the loan, the Bank has felt that it is entitled to receive the assurance of the member that, unless the Bank otherwise agrees, no foreign creditor will be placed in a more favorable position than the Bank by the creation of pledges or priorities on property or revenues of the member or its agencies. That is the purpose and effect of the negative pledge clause. Such an assurance of equality of treatment is clearly appropriate to the international cooperative character of the Bank and in the Bank's judgment represents protection to which the Bank and all its members are entitled in view of their mutual interest in the repayment of the Bank's loans. In administering the negative pledge clauses that are con- tained in its loan and guarantee agreements, the Bank has not at any time acted arbitrarily or unreasonably and we can assure you that the Bank has no intention of doing so in the future. It would never be the policy of the Bank to declare a member state in default merely because there had been an insubstantial and inadvertent infringement of the negative pledge clause. Moreover, the Bank has no wish to interfere with the normal development of the bor- rowing powers of its members and is prepared at all times to give sympathetic consideration to any proposal for a con- sent under the negative pledge clause which is reasonable in the circumstances and would not tend to impair the pros- pects of repayment of the Bank's loan. With this background concerning the reasons why the Bank included the negative pledge clause in the Guarantee Agreement, we would like to confirm our common under- standing of certain aspects of the provision. 18 Article III, Section 2 of the Guarantee Agreement pro- vides in part: "Section 2. The Guarantor covenants that except as the Bank shall otherwise agree in writing, if any charge (in- cluding any mortgage, pledge, lien, privilege or priority) shall be created on any property, assets, revenues or re- ceipts of the Guarantor or of the Banco de la Repiblica Ori- ental del Uruguay as security for the payment of any ex- ternal debt, than by the creation thereof such charge, or an equivalent charge satisfactory to the Bank, will equally and ratably secure the payment of the principal of, and the interests and other charges on, the Loan and the Bonds, and at the time of the creation of any such charge, express provision will be made to that effect; provided, however, that this Section shall not apply to any of the following: * * *"I (Italics added) The language or an equivalent charge satisfactory to the Bank does not generally appear in the negative pledge clause of guarantee agreements to which the Bank is a party and it is important that its inclusion in this Guarantee Agreement should be clearly understood. In our negotiations with your representatives respecting Article III, Section 2, they have pointed out that with re- spect to the Banco de la Reptiblica Oriental del Uruguay, which is an autonomous agency of the Guarantor, a consti- tutional problem may arise should such agency pledge as- sets as security for a loan under circumstances in which the Bank would be entitled to share in such security under the Section in question. The Bank obviously would not wish to incorporate any provision of an unconstitutional character in any agreement with a member government. Accord- ingly, in order to overcome this possible difficulty the Bank proposed the inclusion of the language italicized above. With reference to this alternative so italicized it is the agreed understanding between the parties that: (a) The Guarantor will not offer to the Bank "an equiv- alent charge" in any case where there is no valid constitutional objection to the operation of the nega- 19 tive pledge provision in the manner in which it would normally operate without the inclusion of the itali- cized provision; and (b) That in any case in which the Guarantor does offer the Bank "an equivalent charge" the Guarantor shall furnish to the Bank an opinion of the Fiscal de Gobi- erno satisfactory to the Bank showing that there are valid constitutional objections to the Bank's sharing in the security to which it would be otherwise entitled under Article III, Section 2. If the above is your understanding of the point in ques- tion, please sign and return the enclosed copy of this letter. Very truly yours, INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By R. L. GARNER Vice President Confirmed: REPUBLICA ORIENTAL DEL URUGUAY By ALBERTO DOMiNGUEZ-CAMPORA Authorized Representative