The Mexican state of Chihuahua securitized toll road receipts in two deals in 2002 and returned last year to tap the excess flows from those structures. Now it's setting its sights on a different asset class: federal co-participation revenue, which comes from direct payments by the central government to states and municipalities. Timed for mid-October, the deal is sized at Ps1.2 billion ($111 million), with a final maturity of 10.25 years and a duration of 4.17 years, according to a source familiar with the transaction. The placement agent is Acciones y Valores a unit of Banamex, which is, in turn, owned by Citigroup Inc. The structurer was Corporativo en Finanzas.

Proceeds from the deal will go to pay down a loan of the same size, owed to Banobras, BBVA Bancomer, and Banamex. The loan bears a rate of 7.5% over UDI, Mexico's inflation-indexed unit. The issuer expects to cut its financing costs with the bond, the source said. To protect itself against a spike in rates during the first five years of the deal, the state will buy a 15% cap for that time frame.

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