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17. Borrowings and financing
 12 Months Ended
Dec. 31, 2018
Borrowings And Financing  
Borrowings and financing

 

 Borrowings and financing outstanding balance December 31, 2018 December 31, 2017
Financial institution Current Noncurrent Total Current Noncurrent Total
Local currency            
 10th issue debentures 42,493 40,194 82,687 41,702 80,953 122,655
 12th issue debentures 45,450 249,249 294,699 45,450 294,702 340,152
 14th issue debentures 41,270 103,005 144,275 40,503 141,351 181,854
 15th issue debentures 359,394 - 359,394 346,414 345,788 692,202
 17th issue debentures 279,100 532,691 811,791 144,391 781,922 926,313
 18th issue debentures 33,469 165,267 198,736 33,020 194,872 227,892
 20th issue debentures 248,334 - 248,334 250,000 246,890 496,890
 21th issue debentures - 499,604 499,604 - 499,628 499,628
 22th issue debentures - 756,040 756,040 - - -
 Brazilian Federal Savings Bank 75,223 1,266,592 1,341,815 78,487 1,154,599 1,233,086
 Brazilian Development Bank - BNDES BAIXADA SANTISTA 16,899 - 16,899 16,782 16,782 33,564
 Brazilian Development Bank - BNDES PAC 11,227 39,169 50,396 11,143 50,028 61,171
 Brazilian Development Bank - BNDES PAC II 9751 4,364 18,811 23,175 4,334 22,991 27,325
 Brazilian Development Bank - BNDES PAC II 9752 3,186 23,100 26,286 2,367 19,526 21,893
 Brazilian Development Bank - BNDES ONDA LIMPA 23,632 123,875 147,507 23,469 146,461 169,930
 Brazilian Development Bank - BNDES TIETÊ III 30,589 252,197 282,786 30,378 280,825 311,203
 Brazilian Development Bank - BNDES 2015 31,615 490,729 522,344 10,050 397,922 407,972
 Leases 19,077 549,589 568,666 17,573 544,044 561,617
 Other 1,380 8,163 9,543 1,466 9,477 10,943
 Interest and charges 98,410 - 98,410 101,855 - 101,855
Total in local currency 1,365,112 5,118,275 6,483,387 1,199,384 5,228,761 6,428,145
 Borrowings and financing outstanding balance December 31, 2018 December 31, 2017
Financial institution Current Noncurrent Total Current Noncurrent Total
Foreign currency            
 Inter-American Development Bank - BID 1212  – US$71,947 thousand (US$92,503 thousand in December 2017) 39,826 238,954 278,780 34,000 238,000 272,000
 Inter-American Development Bank - BID 2202 – US$544,457 thousand (US$438,071 thousand in December 2017) 124,098 1,969,565 2,093,663 81,757 1,375,358 1,457,115
 International Bank of Reconstruction and Development -BIRD – US$91,286 thousand (US$79,946 thousand in December 2017) 11,779 341,646 353,425 - 301,665 301,665
 Deutsche Bank – US$75,000 (US$150,000 thousand in December 2017) 288,479 - 288,479 248,100 242,343 490,443
 Eurobonds – US$350,000 thousand (US$350,000 thousand in December 2017) - 1,354,532 1,354,532 - 1,155,331 1,155,331
 JICA 15 – ¥12,676,730 thousand (¥13,829,160 thousand in December 2017) 40,646 406,462 447,108 33,881 372,696 406,577
 JICA 18 – ¥11,397,760 thousand (¥12,433,920 thousand in December 2017) 36,545 365,230 401,775 30,463 334,849 365,312
 JICA 17 – ¥1,826,957 thousand (¥1,534,959 thousand in December 2017) 11,835 51,786 63,621 2,507 41,835 44,342
 JICA 19 – ¥31.561.726 thousand (¥29,777,232 thousand in December 2017) 64,028 1,047,081 1,111,109 - 873,383 873,383
 BID 1983AB – US$58,462 thousand (US$82,404 thousand in December 2017) 68,554 155,653 224,207 79,201 189,990 269,191
 Interest and charges 52,710 - 52,710 37,462 - 37,462
Total in foreign currency 738,500 5,930,909 6,669,409 547,371 5,125,450 5,672,821
             
Total borrowings and financing 2,103,612 11,049,184 13,152,796 1,746,755 10,354,211 12,100,966

 

Exchange rate as of December 31, 2018: US$3.8748; ¥0.03527 (as of December 31, 2017: US$3.3080; ¥0.02940).

As of December 31, 2018, the Company did not have balances of borrowings and financing, raised during the year, to mature within 12 months.

 

Local currency Guarantees Maturity Annual interest rates Inflation adjustment
         
10th issue debentures Own funds 2020 TJLP +1.92% (Series 1 and 3) and 9.53% (Series 2) IPCA (Series 2)
12th issue debentures Own funds 2025  TR + 9.5%  
14th issue debentures Own funds 2022 TJLP +1.92% (Series 1 and 3) and 9.19% (Series 2) IPCA (Series 2)
15th issue debentures Own funds 2019 CDI + 0.99% (Series 1) and 6.2% (Series 2) IPCA (Series 2)
17th issue debentures Own funds 2023 CDI +0.75 (Series 1) and 4.5% (Series 2) and4.75% (Series 3) IPCA (Series 2 and 3)
18th issue debentures Own funds 2024 TJLP 1.92 % (Series 1 and 3) and 8.25% (Series 2) IPCA (Series 2)
20th issue debentures Own funds 2019 CDI + 3.80%  
21th issue debentures Own funds 2022 CDI + 0.60% e CDI+ 0.90%  
22th issue debentures Own funds 2025 CDI +0.58 (Series 1) and CDI + 0.90% (Series 2) and 6.0% (Series 3) IPCA (Series 3)
Brazilian Federal Savings Bank Own funds 2019/2039 5% to 9.5% TR
Brazilian Development Bank - BNDES BAIXADA SANTISTA Own funds 2019 TJLP+2.5%  
Brazilian Development Bank - BNDES PAC Own funds 2023 TJLP+2.15%  
Brazilian Development Bank - BNDES PAC II 9751 Own funds 2027 TJLP+1.72%  
Brazilian Development Bank - BNDES PAC II 9752 Own funds 2027 TJLP+1.72%  
Brazilian Development Bank - BNDES ONDA LIMPA Own funds 2025 TJLP+1.92%  
Brazilian Development Bank - BNDES TIETÊ III Own funds 2028 TJLP+1.66%  
Brazilian Development Bank - BNDES 2015 Own funds 2035 TJLP+2.5%  
Leases   2035 7.73% to 10.12% IPC
Other Own funds 2025 12% (Presidente Prudente) and TJLP + 1.5% (FINEP) TR

 

 

Foreign currency Guarantees Maturity Annual interest rates Exchange rate changes
         
Inter-American Development Bank - BID 1212  - US$71,947 thousand Government 2025 3.31% (*) US$
Inter-American Development Bank - BID 2202  - US$544,457 thousand Government 2035 3.42% (*)  US$
International Bank for Reconstruction and Development - BIRD US$91,286 thousand Government 2034 2.85% (*) US$
Deutsche Bank US$75,000 thousand -  2019 4.50%(*) US$
Eurobonds – US$350,000 thousand -  2020 6.25% US$
JICA 15 – ¥12,676,730 thousand Government 2029 1.8% and 2.5% Yen
JICA 18 – ¥11,397,760 thousand Government 2029 1.8% and 2.5% Yen
JICA 17– ¥1,826,957 thousand Government 2035 1.2% and 0.01% Yen
JICA 19– ¥31,561,726 thousand Government 2037 1.7% and 0.01% Yen
BID 1983AB – US$58,462 thousand -  2023 2.08% to 2.38% (*) US$

 

(*)Rates comprising LIBOR + contractually defined spread.

 

(i) Payment schedule – accounting balances as of December 31, 2018

 

  2019 2020 2021 2022 2023 2024 2025 to 2039 TOTAL
LOCAL CURRENCY                
Debentures 1,049,510 589,190 479,995 559,184 362,555 204,832 150,294 3,395,560
Brazilian Federal Savings Bank 75,223 78,072 82,169 86,589 79,037 77,369 863,356 1,341,815
BNDES 121,512 103,260 102,809 102,809 97,069 91,581 450,353 1,069,393
Leasing 19,077 36,903 38,700 40,654 43,416 45,153 344,763 568,666
Other 1,380 1,380 1,380 1,380 1,380 1,380 1,263 9,543
Interest and charges 98,410 - - - - - - 98,410
TOTAL IN LOCAL CURRENCY 1,365,112 808,805 705,053 790,616 583,457 420,315 1,810,029 6,483,387
FOREIGN CURRENCY                
BID 163,923 163,923 163,923 163,923 163,923 163,923 1,388,905 2,372,443
BIRD 11,779 23,557 23,557 23,557 23,557 23,557 223,861 353,425
Deutsche Bank 288,479 - - - - - - 288,479
Eurobonds - 1,354,532 - - - - - 1,354,532
JICA 153,055 140,431 140,431 140,431 140,431 140,431 1,168,403 2,023,613
BID 1983AB 68,554 67,786 29,806 29,806 28,255 - - 224,207
Interest and charges 52,710 - - - - - - 52,710
TOTAL IN FOREIGN CURRENCY 738,500 1,750,229 357,717 357,717 356,166 327,911 2,781,169 6,669,409
Overall Total 2,103,612 2,559,034 1,062,770 1,148,333 939,623 748,226 4,591,198 13,152,796

 

(ii)   Changes

 

  December 31, 2017 Funding Borrowings costs Monetary variation and exchange rate changes Inflation adjustment / update incorporated interest - Capitalized Interest and fees paid Amortization Accrued interest Interest and fees - Capitalized (*) Borrowings costs - expenses December 31, 2018
                       
LOCAL CURRENCY                      
Debentures 3,576,842 750,000 (3,021) 62,676 - (259,175) (905,080) 226,810 34,409 3,400 3,486,861
Brazilian Federal Savings Bank 1,236,674 194,244 - - - (102,772) (85,515) 75,668 27,385 - 1,345,684
BNDES 1,042,036 131,000 - 3,438 4,001 (90,397) (102,314) 28,909 55,725 207 1,072,605
Leasing 561,616 - - - 6,366 (38,196) (17,427) 40,290 16,017 - 568,666
Other 10,977 - - 69 - (772) (1,470) 763 4 - 9,571
TOTAL IN LOCAL CURRENCY 6,428,145 1,075,244 (3,021) 66,183 10,367 (491,312) (1,111,806) 372,440 133,540 3,607 6,483,387
                       
FOREIGN CURRENCY                      
BID 1,743,257 484,690 (2,365) 237,433 53,208 (55,391) (130,520) 26,910 41,878 885 2,399,985
BIRD 303,278 - - 48,279 3,462 (7,607) - 6,945 2,044 19 356,420
Deutsche Bank 496,726 - - 62,918 - (35,207) (268,508) 28,862 4,454 3,627 292,872
Eurobonds 1,158,642 - - 198,380 - (97,952) - 85,072 13,448 822 1,358,412
JICA 1,700,448 80,196 (191) 329,638 6,787 (33,519) (82,608) 33,992 1,209 176 2,036,128
BID 1983AB 270,470 - - 39,241 - (11,060) (85,306) 9,681 1,488 1,078 225,592
TOTAL IN FOREIGN CURRENCY 5,672,821 564,886 (2,556) 915,889 63,457 (240,736) (566,942) 191,462 64,521 6,607 6,669,409
Overall Total 12,100,966 1,640,130 (5,577) 982,072 73,824 (732,048) (1,678,748) 563,902 198,061 10,214 13,152,796

  

(*) amount related to accrued interest which as part of the contract asset.

 

  December 31, 2016 Funding Borrowings costs Lease Monetary variation and exchange rate changes Inflation adjustment / update incorporated interest - Capitalized Interest and fees paid Amortization Accrued interest Interest and fees - Capitalized (*) Borrowings costs - expenses December 31, 2017
                         
LOCAL CURRENCY                        
Debentures 3,641,912 500,000 (1,157) - 51,768 - (301,493) (597,794) 176,780 103,215 3,611 3,576,842
Brazilian Federal Savings Bank 1,150,691 144,654 - - 5,495 1,415 (95,854) (65,836) 78,283 17,826 - 1,236,674
BNDES 946,984 171,153 - - 5,405 2,512 (78,466) (87,993) 33,938 48,294 209 1,042,036
Leasing 552,516 - - 24,693 - - - (15,593) - - - 561,616
Other 11,677 - - - 116 - (876) (750) 779 31 - 10,977
TOTAL IN LOCAL CURRENCY 6,303,780 815,807 (1,157) 24,693 62,784 3,927 (476,689) (767,966) 289,780 169,366 3,820 6,428,145
                         
FOREIGN CURRENCY                        
BID 1,811,664 96,889 (2,497) - (15,193) 40,228 (38,654) (189,280) 22,547 16,803 750 1,743,257
BIRD 261,337 35,710 - - 2,874 2,837 (4,049) - 3,662 888 19 303,278
Deutsche Bank 485,090 - (720) - 7,335 - (31,774) - 21,286 11,925 3,584 496,726
Eurobonds 1,141,469 - - - 17,115 - (85,338) - 55,046 29,529 821 1,158,642
JICA 1,617,215 63,909 (287) - 82,563 2,525 (28,652) (65,702) 27,602 1,115 160 1,700,448
BID 1983AB 343,588 - (82) - 1,609 - (10,931) (75,610) 6,858 3,715 1,323 270,470
TOTAL IN FOREIGN CURRENCY 5,660,363 196,508 (3,586) - 96,303 45,590 (199,398) (330,592) 137,001 63,975 6,657 5,672,821
Overall Total 11,964,143 1,012,315 (4,743) 24,693 159,087 49,517 (676,087) (1,098,558) 426,781 233,341 10,477 12,100,966

 

(*) amount related to accrued interest which as part of the contract asset.

 

  December 31, 2015 Funding Borrowings costs Lease Monetary variation and exchange rate changes Inflation adjustment / update incorporated interest - Capitalized Interest and fees paid Amortization Accrued interest Interest and fees - Capitalized (*) Borrowings costs - expenses December 31, 2016
                         
LOCAL CURRENCY                        
Debentures 4,203,127 -  (1,241) - 105,385 - (375,027) (663,468) 214,245 154,814 4,077 3,641,912
Brazilian Federal Savings Bank 1,067,464 113,310 - - 15,619 6,405 (89,896) (52,315) 63,813 26,291 - 1,150,691
BNDES 696,329 313,072 (2,242) - - - (55,806) (76,469) 38,172 33,768 160 946,984
Leasing 534,894 -   32,111 - - - (14,489) - - - 552,516
Other 1,962 10,014 - - 31 - (905) (655) 1,149 81 - 11,677
TOTAL IN LOCAL CURRENCY 6,503,776 436,396  (3,483) 32,111 121,035 6,405 (521,634) (807,396) 317,379 214,954 4,237 6,303,780
                         
FOREIGN CURRENCY                        
BID 2,194,353 113,543 (3,819) - (396,817) 37,412 (42,429) (133,063) 21,792 20,100 592 1,811,664
BIRD 238,940 59,983 - - (40,213) 1,971 (1,876) - 1,916 597 19 261,337
Deutsche Bank - 469,020  (9,167) - 19,845 - - - 2,042 2,804 546 485,090
Eurobonds 1,922,256 - - - (334,915) - (128,283) (437,752) 69,002 50,239 922 1,141,469
JICA 1,756,969 188,755 (468) - (259,455) 5,771 (33,799) (73,854) 30,791 2,362 143 1,617,215
BID 1983AB 505,306 - (236) - (78,910) -  (11,923) (83,247) 6,548 4,772 1,278 343,588
TOTAL IN FOREIGN CURRENCY 6,617,824 831,301 (13,690) - (1,090,465) 45,154 (218,310) (727,916) 132,091 80,874 3,500 5,660,363
Overall Total 13,121,600 1,267,697 (17,173) 32,111 (969,430) 51,559 (739,944) (1,535,312) 449,470 295,828 7,737 11,964,143

 

(*) amount related to accrued interest which as part of the contract asset.

 

(a)         Debentures

 

Balance as of December 31, 2018 is stated net of borrowings costs in the amount of R$5,590 (R$6,223 as of December 31, 2017), which will be amortized during the same maturity period of each contract.

 

(i)        Main events

 

Amortizations

  Amount Maturity Interest rates
17th issue - series 1 R$ 144,391 January 15, 2018 CDI
17th issue - series 2 R$ 348,434 February 15, 2018 IPCA
20th issue R$ 250,000 December 20, 2018 CDI
10th issue R$ 42,438 2018 (*) TJLP/IPCA
12th issue R$ 45,450 2018 (*) TR
14th issue R$ 40,726 2018 (*) TJLP/IPCA
18th issue R$ 33,641 2018 (*) TJLP/IPCA

(*) Amounts paid during the year.

 

Funding

As of February 19, 2018, the Company held the 22nd issue of unsecured debentures, not convertible into shares, totaling R$ 750 million, in up to three series, for public distribution, with restricted placement efforts, pursuant to CVM Instruction 476/09, distributed as follows:

  Amount   Maturity   Remuneration

Series 1

Series 2

Series 3

R$ 100,000

R$ 400,000

R$ 250,000

  

3 years

5 years

7 years

  

CDI + 0.58% p.a.

CDI + 0.90% p.a.

IPCA + 6.00% p.a.

 

The proceeds from the debenture issue a allocated to refinance financial commitments and recompose the Company’s cash.

(ii)      Covenants

 

For the outstanding contracts, the Company has the following restrictive clauses “covenants”:

 

Applicable to the 10th issue, 14th issue and 18th issue:

 

Financial covenants applicable to the 10th, 14th and 18th issues and the financing agreements entered into with the BNDES, except for agreement no. 08.2.0169.1 (PAC):

 

The financing agreements entered into with the BNDES specify two ranges in which the Company needs to maintain its Adjusted EBITDA / Adjusted Financial Expenses, Adjusted Net Debt / Adjusted EBITDA, and Other Onerous Debt / Adjusted EBITDA ratios. 

 

These agreements also specify a guarantee mechanism in which the Company needs to ensure that a portion of the monthly receivables amount is daily recorded in a fiduciary account linked to the BNDES. In this process, every day, after the BNDES notifies the depositary bank that the Company is not in default, this portion of the monthly receivables amount is transferred to a Company current account.

 

The renegotiated/amended covenants are:

 

A.   Maintenance of the following ratios, quarterly calculated and related to accrued amounts over the last 12 months, upon the disclosure of reviewed interim financial statements or audited annual financial statements entails the need to record R$225.9 million per month in a fiduciary account linked to the BNDES:

 

·       Adjusted EBITDA / Adjusted financial expenses equal to or higher than 3.50;

·       Adjusted net debt / Adjusted EBITDA equal to or lower than 3.00;

·       Other onerous debt (*) / Adjusted EBITDA equal to or lower than 1.00.

 

(*)“Other Onerous Debts” correspond to the sum of social security liabilities, health care plan, installment payment of tax debts and installment payment of debts with the Electricity supplier.

 

B.   In case of failure to comply with one or more ratios specified in item A, in two or more quarters, consecutive or not, within twelve months, the Company will be failing to comply with the first range of ratios and the portion of the monthly receivables to be recorded in a fiduciary account linked to the BNDES will be automatically increased by 20%, if the ratios are maintained in the following range:

 

·       Adjusted EBITDA / Adjusted financial expenses lower than 3.50 and equal to or higher than 2.80;

·       Adjusted net debt / adjusted EBITDA equal to or lower than 3.80 and higher than 3.00;

·       Other onerous debt / Adjusted EBITDA equal to or lower than 1.30 and higher than 1.00.

 

C.    The failure to achieve one or more than one ratio stipulated in item B, and/or the Company does not comply with the automatic reinforcement of guarantee under the terms of item B, the Company will be failing to comply with the covenant terms and the BNDES may, at its sole discretion:

 

·       require the creation of additional guarantees, not below 30 days, within term to be defined by it through notice;

 

·       suspend the release of funds; and/or

·       declare the early maturity of the financing agreements.

 

As of December 31, 2018, the amount of R$242.9 million was guaranteed for the agreements above (excluding the guarantee of agreement no 08.2.0169.1).

 

Financial covenants applicable to financing agreement no. 08.2.0169.1 entered into with the BNDES:

 

·       Adjusted EBITDA / adjusted net operating revenue: equal to or higher than 38%;

·       Adjusted EBITDA /adjusted financial expenses: equal to or higher than 2.35;

·       Adjusted net debt / adjusted EBITDA: equal to or lower than 3.20.

 

The BNDES will annually verify if the ratios have been complied with by analyzing the annual audited financial statements, which must be presented to the BNDES or published by April 30 of the subsequent year referring to the financial statements.  If the Company complies, cumulatively, with the ratios above, the BNDES will reduce the interest stipulated in the agreement from 2.15% p.a. to 1.82% p.a., from June 16 of the year when the analysis is carried out to June 15 of the subsequent year.

 

The agreements also have a cross default clause, e.g., the early maturity of any of the Company’s debts, the amount of which may anyhow compromise the settlement of its obligations provided for in the Indenture deed shall imply the early maturity of such agreement.

 

Applicable to the 12th issue:

 

Calculated every quarter upon the disclosure of interim or annual financial statements:

 

- Adjusted current ratio (current assets divided by current liabilities, excluding from current liabilities the current portion of noncurrent debts incurred by the Company that are recorded in current liabilities) higher than 1.0;

 

- EBITDA to paid financial expenses ratio equal to or higher than 1.5;

 

- Disposal of operating assets, extinguishment of license, loss of concession or loss of Issuer’s capacity to execute and operate the basic sanitation public utilities in areas of the State of São Paulo territory, which considered individually or jointly during the contract’s effectiveness, result in a reduction of net sales revenue and/or services revenue of the Issuer exceeding twenty-five percent (25%).  The limit established above will be calculated quarterly, taking into account the Issuer’s operating income for the twelve (12) months preceding the end of each quarter and applying the financial information disclosed by the Issuer; and

 

Noncompliance with these obligations only will be characterized when verified in its interim financial statements, during at least, two consecutive quarters, or also two nonconsecutive quarters within a twelve-month period.

 

In case of noncompliance with the covenants, the trustee should call an extraordinary debenture holders' meeting within 48 hours from the acknowledgement of the noncompliance to resolve on the declaration of early maturity of the debentures.

 

This issue has an early maturity clause, in case there is a downgrade, by more than two levels, of the “brAA-” risk rating in national scale originally attributed to this issue’s Debentures by the Rating Agency, always taking into consideration the Standard & Poor’s rating table. As of December 31, 2018, SABESP’s rate was “brAAA”.

 

The agreement also has a cross default clause, i.e. the early maturity of any of the Company’s debts, equal to or exceeding R$50 million, adjusted by IPCA variation as of the issue date, due to contractual default, the amount of which may anyhow compromise the settlement of the Company’s monetary obligations arising from the Issue, shall imply the early maturity of this agreement.

 

Applicable to the 15th issue, 17th issue and 20th issues:

 

Calculated every quarter upon the disclosure of interim or annual financial statements:

 

- Adjusted total Debt/EBITDA: lower than or equal to 3.65;

 

- EBITDA/ paid financial expenses: equal to or higher than 1.5;

 

- Disposal of operating assets, extinguishment of license, loss of concession or loss of Issuer’s capacity to execute and operate the basic sanitation public utilities in areas of the State of São Paulo territory, which considered individually or jointly during the contract’s effectiveness, result in a reduction of net sales revenue and/or services revenue of the Issuer exceeding twenty-five percent (25%).  The limit established above will be calculated quarterly, taking into account the Issuer’s operating income for the twelve (12) months preceding the end of each quarter and applying the financial information disclosed by the Issuer; and

 

Non-compliance with the covenant clauses, during, at least, two consecutive quarters, or also two nonconsecutive quarters within a twelve-month period shall result in the early maturity of the agreement.

 

The agreements have a cross acceleration clause, i.e., the early maturity of any of the Company’s debts, equal to or exceeding R$90 million (for the 20th issue, amount equal to or exceeding R$120 million), adjusted by IPCA variation as of the issue date, due to contractual default, the amount of which may compromise the settlement of the Company’s monetary obligations arising from the Issue, will result in the early maturity of these agreements.

 

Applicable to 21st and 22st issues:

 

Calculated every quarter upon the disclosure of interim or annual financial statements:

- Net debt/ EBITDA:  lower than or equal to 3.65;

- EBITDA/ paid financial expenses: equal to or higher than 1.5;

- Disposal of operating assets, extinguishment of license, loss of concession or loss of Issuer’s capacity to execute and operate the basic sanitation public utilities in areas of the State of São Paulo territory, which considered individually or jointly during the deed’s effectiveness, result in a reduction of net sales revenue and/or services revenue of the Issuer exceeding twenty-five percent (25%).  The limit established above will be calculated quarterly, taking into account the Issuer’s operating income for the twelve (12) months preceding the end of each quarter and applying the financial information disclosed by the Issuer.

Non-compliance with the covenant clauses, during, at least, two consecutive quarters, or also two nonconsecutive quarters within a twelve-month period shall result in the early maturity of the agreement.

The agreement have a cross acceleration clause, i.e., the early maturity of any of the Company’s debts, equal to or exceeding R$145 million, adjusted by IPCA variation as of the issue date, result in an event of default that result in the early maturity of these agreements.

 

(b)      Brazilian Federal Savings Bank - CEF 

 

(i)        Main events

 

Funding totaled R$194,244 in 2018, mainly related to the agreements in progress of the Growth Acceleration Program (PAC).

 

In 2018, amortizations totaled R$85,515.

 

The guarantee for financing agreements entered into with the Brazilian Federal Savings Bank is the recognition of a portion of tariffs in an account for this purpose with the Brazilian Federal Savings Bank, which should maintain a flow equal to or at least three times the amount of the monthly charges, during the grace period, based on interest, the management fee and the credit risk rate and, during the amortization phase, based on the principal, interest, the management fee and the credit risk rate. Additionally, the Company maintains a reserve account, linked to financing agreements, in the Brazilian Federal Savings Bank, which is maintained during the entire term the agreements, where an amount is accrued equivalent to a monthly charge, composed of, during the grace period, interest, the management fee and the credit risk rate and, during the amortization phase, of the principal, interest, the management fee and the credit risk rate.

 

 

(ii)      Sanitation to All Program of the Brazilian Federal Savings Bank (CEF)

 

On December 28, 2018, SABESP entered into seven financing agreements (twenty-one sub-credits) with the Brazilian Federal Savings Bank, totaling R$ 652.2 million. The agreements were selected by the Ministry of Cities – City Progress / Sanitation to All Programs. The funds came from the Guarantee Fund for Length of Service - FGTS and will allocated  to sanitation services.

 

Covenants

 

The agreements have a cross default clause, i.e., the early maturity of any of the Company’s debts, due to contractual default, the occurrence of which may anyhow compromise the settlement of its monetary obligations deriving from these contracts shall imply the early maturity.

 

The agreement has the following covenants:

 

Calculated every quarter upon the disclosure of interim financial information based on information included in the financial statements for the last twelve (12) months:

Restrict the funding of new debt so that:

 

·  Adjusted EBITDA/ adjusted financial expenses equal to or higher than 2.80;

·  Adjusted net debt/adjusted EBITDA: equal to or higher than 3.80;

·  Other onerous debt(*) / adjusted EBITDA lower than or equal to 1.30

 

(*) “Other Onerous Debts” correspond to the sum of social security liabilities, health care plan, installment payment of tax debts and installment payment of debts with the electricity supplier.

 

(c) BNDES

 

Balance as of December 31, 2018 is stated net of borrowings costs in the amount of R$2,584 (R$2,793 on December 31, 2017), which will be amortized during the same maturity period of each contract.

 

(i)        Main events

 

In 2018, funding from current contracts totaled R$131,000, mainly referring to the BNDES 2015 agreement, in the amount of R$124,000 and BNDES PAC II 9752, in the amount of R$ 7,000.

 

In 2018, amortizations totaled R$102,314.

 

Loans are collateralized by part of revenues from the provision of water and sewage services, up to the total amount of the outstanding balance.

 

(ii)      Covenants

 

The agreements entered into with the BNDES have standardized financial covenants, as described in item (a), (ii), covenants applicable to the 10th issue, 14th  issue and 18th  issue, of this Note.

 

 

(d)      Leasing

           

The Company has lease agreements signed as Assets Lease.  During the construction period, works are capitalized to intangible assets in progress and the lease amount is recorded at the same proportion.  Works are estimated to be concluded in 2019.

 

After startup, the lease payment period starts (240 monthly installments), whose amount is periodically restated by contracted price index.

 

(e)      Eurobonds

 

Balance as of December 31, 2018 is net of borrowing costs in the amount of R$1,648 (R$2,470 as of December 31, 2017), which will be amortized during the same maturity period of the contract.

 

(i)    Covenants

 

The contract has the following restrictive clauses “covenants”:

 

Calculated every quarter upon the disclosure of interim or annual financial statements:

 

Restrict the funding of new debts so that:

 

-   Adjusted total debt to EBITDA does not exceed 3.65;

-   The Company's debt service coverage ratio, determined at the end of each quarter, shall not be  lower than 2.35.

 

Non-compliance with covenants will accelerate the maturity of the agreement.

 

The agreement has a cross default clause, i.e., the early maturity of any indebtedness in view of the Company’s loans or any of its Subsidiaries (*) with a total principal amount of US$ 25,000,000.00 or more (or its corresponding amount in other currencies) shall imply this agreement’s early maturity.

 

(*) As per agreement, subsidiary is: “the company, partnership or another entity from which over 50% of its voting shares are directly or indirectly owned or controlled by any Person or one or other Person’s Subsidiaries, or their combination”.

 

 

(f)      Deutsche Bank US$150 million

 

Balance as of December 31, 2018 is net of borrowing costs in the amount of R$2,131 (R$5,757 as of December 31, 2017), which will be amortized during the maturity period of the contract.

 

In 2018, amortizations totaled R$ 268,508.

 

 

(i)    Covenants

 

The agreement has the following restrictive clauses “covenants”:

 

Calculated every quarter upon the disclosure of interim or annual financial statements:

 

-   Total debt/adjusted EBITDA: lower than 3.65;

-   Company's debt service coverage ratio, determined at the end of each quarter, shall not be lower than 2.35.

 

Non-compliance with covenants for two quarters, consecutive or not, will accelerate the maturity of the agreement.

 

The agreement has a “cross acceleration” clause, i.e., in the early maturity of any debt of the Company or any of its subsidiaries, with a total principal or aggregate amount equal to or higher than R$120 million (or its equivalent in another currency), contracted pursuant to the Brazilian law, or with a total principal or aggregate amount equal to or higher than US$50 million (or its equivalent in another currency), in the case of debts governed by the laws of any other jurisdiction other than Brazil, will result in the early maturity of the agreement.

 

(*) Pursuant to the agreement, a subsidiary means any partnership, corporation, company, association or commercial entity in which SABESP or one or more of its subsidiaries directly or indirectly hold more than 50% of the outstanding common shares with voting rights of its respective capital stock.

 

(g)      Inter-American Development Bank (BID)

 

Balance as of December 31, 2018 is net of borrowing costs amounting to R$15,999 (R$14,517 as of December 31, 2017), which will be amortized during the same maturity period of the agreement.

 

(i)        Main events

 

In 2018, funding referring to BID 2202 agreement totaled R$ 484,690 and amortizations totaled R$ 130,520.

 

(ii)      Guarantees

 

Loans obtained from multilateral agencies and from Government Agencies, such as the BID, BIRD and JICA, are guaranteed by the Federal Government, with a counter-guarantee of the São Paulo State government.

 

(iii)   Covenants

 

For the outstanding contracts, the Company has the following restrictive clauses “covenants”:

 

Calculated every quarter upon the disclosure of interim or annual financial statements:

 

-   Loan agreement 1,212 - Tariffs must: (a) produce revenues sufficient to cover the system's operating expenses, including administrative, operating, maintenance, and depreciation expenses; (b) provide a return on property, plant, and equipment no less than 7%; and (c) during project execution, the balances of current loans must not exceed 8.5% of total equity.

 

These agreements have an early maturity clause, i.e., in the early maturity will occur in the event the Company’s fail failure to comply with any obligation therewith or any agreements signed with the Bank related to Project finance.

 

(h)      Japan International Cooperation Agency - JICA

 

(i)        Relevant funding

 

Balance as of December 31, 2018 is stated net of borrowing costs amounting to R$3,113 (R$3,100 as of December 31, 2017), which will be amortized during the same maturity period of the contract.

 

(ii)      Main events

 

In 2018, the Company raised R$80,196, referring to BZ-P19 (JICA 19) e BZ-P17 (JICA 17) agreements.

 

In 2018, amortizations totaled R$82,608 referring to JICA BZ-15, JICA BZ-17 and JICA BZ-18 agreements.

 

For the guarantees assigned, see item g (ii) of this note.

 

(i)       AB Loan (IADB 1983AB)

 

The balance stated as of December 31, 2018 is net of borrowing costs amounting to R$2,322 (R$3,400 as of December 31, 2017), which will be amortized during the same maturity period of the contract.

 

(i)        Main events

 

In 2018, amortization totaled R$85,306.

 

(ii)      Covenants

 

The Company has the following restrictive clauses “covenants”:

 

Calculated every quarter upon the disclosure of interim or annual financial statements:

 

- The Company’s ratio of debt service coverage, determined on a consolidated basis, must be higher than or equal to 2.35; and

 

- Total adjusted debt over adjusted EBITDA, determined on a consolidated basis, must be lower than 3.65.

 

The agreement has an early maturity clause, i.e., in the event of default, the BID may order the early maturity of the loan or part of it.

 

The agreement also has a “cross default” clause, i.e., in the event of default of any other Company debt with the BID or with third parties (in this case, higher than US$25 million), the BID may order the early maturity of the loan.

 

(j)       International Bank for Reconstruction and Development - IBRD

 

Balance as of December 31, 2018 is stated net of borrowing costs amounting to R$290 (R$310 as of December 31, 2017), which will be amortized during the same maturity period of the contract.

 

For the guarantees assigned, see item g (ii) of this Note.

 

(k)      Covenants

                         

As of December 31, 2018 and 2017, the Company had met the requirements set forth by its borrowings and financing agreements.

 

(l) Exchange rate changes

 

In 2018, the US dollar appreciated 17.1%, from R$ 3.3080 on December 31, 2017 to R$ 3.8748 on December 31, 2018, increasing debt in US dollars by R$ 675,145, and the yen appreciated 20.0%, from R$ 0.02940 on December 31, 2017 to R$ 0.035270 on December 31, 2018, increasing debt in yen by R$ 337,309.

 

(m)    Borrowings and financing – Credit Limits

 

Agent   December 31, 2018
    (in millions of reais (*))
Brazilian Federal Savings Bank   1,908
Brazilian Development Bank – BNDES   1,455
Japan International Cooperation Agency – JICA   208
Other   38
TOTAL   3,609

 

(*) Brazilian Central Bank’s exchange rate as of December 30, 2018 ( ¥1.00 = R$0.03527).

 

SABESP in order to comply with its Capex plan relies on a fund-raising plan.

 

Financing resources contracted have specific purposes, which have been released for the execution of their respective investments, according to the progress of the works.