UPDATE 2-Brazil, banks to finalize electricity fund loan in late April -source

Mon Apr 7, 2014 3:34pm EDT

(Recast with possible loan disbursement and context)

By Alonso Soto and Guillermo Parra-Bernal

BRASILIA/SAO PAULO, April 7 (Reuters) - A syndicated loan aimed at helping struggling Brazilian electricity distributors cope with the impact of dry weather could be finalized by the end of April, a source with knowledge of the plan told Reuters on Monday.

The government and banks are discussing the terms of the possible loan worth 8 billion reais ($3.6 billion) to electricity industry clearinghouse CCEE, a senior executive at Banco Bradesco SA said earlier on Monday.

The plan, aimed at shoring up the finances of ailing power distributors, will likely take the form of loan rather than a bond sale, said Sergio Figueiredo, Bradesco's senior vice president for wholesale and private banking, at an event in Sao Paulo.

Private banks are expected to have an "important participation" in the loan, said the source, who declined to say how much money those banks are willing to disburse. The source added that any contribution from state-run banks will not have an impact on the budget since the National Treasury does not intend to finance them.

Rating agencies have voiced worries about the involvement of public funds in the operation after a sharp erosion of the country's fiscal accounts prompted Standard & Poor's to cut Brazil's rating closer to junk territory in March.

Three sources with knowledge of the situation told Reuters in March that state-controlled lenders Banco do Brasil SA and Caixa Econômica Federal SA have discussed terms of the transaction with the government, as well as Bradesco. Caixa and Banco do Brasil repeatedly declined to comment.

The loan would go to the CCEE, a privately held entity in charge of buying and selling electricity in the spot market, which would subsequently funnel money into the coffers of Brazilian power distributors.

Companies in the electricity sector are grappling with soaring spot power costs amid the driest start of a year in decades and the government's reluctance to increase consumer rates before the October presidential election.

Ideally, two of the sources said in March, a pool of banks would lend the money and peg the debt to receivables linked to utility bills. Repayment could begin as early as next year, the sources said.

($1 = 2.23 Brazilian reais) (Reporting by Alonso Soto and Guillermo Parra-Bernal; Editing by Franklin Paul and Meredith Mazzilli)

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