The Mexican state of Chihuahua is skimming the excess flows from two outstanding toll-road ABS and doling that risk out to retail investors, apparently the first deal of its kind in the peso market, according to a few sources.
Capped at Ps1.8 billion (US$157 million), the 10-year transaction will feed off the overflow of two deals amounting to Ps2.5 billion (US$218 million). Pricing has been set at 295 basis points over the highest of either Cete Treasuries of up to six months or the benchmark TIIE of up to six months. The bond was set to launch Aug. 13.
Financial consultancy Corporativo en Finanzas structured both the upcoming transaction and its senior pieces. Local brokerage Value will distribute the newly packaged tranche, which Fitch Ratings rated AA(mex)' on the national scale. The agency rated the senior deals AAA(mex)'. Standard & Poor's, which gave the initial deals AA+(mex)', is not rating their spin-off.
As the subordinated paper is being solely marketed to retail investors, it does not need the double ratings demanded by local pension funds. "For bankers, the pension market is easier to tackle; these guys play golf together, have dinner together and everyone knows each other," said a source close to the deal. He added that the retail market is potentially larger and relatively untapped in the non-treasury bond market. Value is distributing the transaction through a 500-strong sales team.
Rival bankers will be watching closely since this kind of subordinated issuance apparently has not been executed before in the peso market. "We've been looking at [doing this] with other issuers," said one Mexico City-based banker. "It'll be interesting to see how it plays out."
For the senior pieces, the road traveled has not been exactly smooth. Around the time the deals launched in late 2002, 11 opposition congressmen from the state legislature mounted a formal legal challenge to the transactions on constitutional grounds. The Chihuahan Supreme Court ruled in favor of the deal on Oct. 29, 2003.
The subordinated tranche is backed by flows in excess of coupon payments and any other costs incurred by the senior tranche. Originally, that flow was looping back to the state of Chihuahua. Toll revenues from a total of nine highways back the transaction. Five are state-owned, and four are federal highways that have been concessioned to the state. Combined traffic on the roads has grown 5.8% between 1996 and 2003.
Pacsa is the most recent road concessionaire to fund in the market. Sized at 1.46 billion inflation-indexed units (UDIs) (US$436 million), that nine-year deal priced at a real rate of 4.5% in September 2003. All three agencies rated it triple-A on the national scale. Another toll-road operator, Carreteras Cuota Puebla, is coming down the road this week (see Mexico, p. 20).
Over the last few years, the Mexican toll road sector has been coming out of troubled times triggered by the peso crisis of 1994. From 1989 to 1994, the first generation of toll-road financings absorbed roughly US$13 billion, according to a recent Moody's Investors Service report penned by Chee Mee Hu. Oversize expectations, a heavy reliance on public-sector lending and the plunge in the peso eventually slammed the sector, "leaving many local commercial banks with underperforming loans estimated at around US$5 billion and concessionaires with weaker-than-projected investments," Hu said. The agency has a sunnier view of the new wave of toll-road funding: "[It] will likely benefit from the capital markets' more realistic assessments of project viability."
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