The Inter-American Development Bank (IADB) recently sold $75 million in certificates of participation for its B-loan financing for Transportadora de Gas del Sur (TGS). The transaction, which was managed by ING Barings, is the third deal under the B-loan program for the IADB in Argentina, and the second one for TGS (ASRI 4/19/1999 p.1).
The certificates of participation feature a 10.19% coupon (a spread of 420 basis points over Treasurys) and mature in 2011.
The IADB has an active lending program in which it typically retains a portion of a loan the A piece and syndicates the remainder the B piece. Until recently, the bank used to syndicate its B-loan to commercial banks. Since earlier this year, however, the bank has been tapping U.S. investors rather than banks. This is because U.S. investors can provide longer-term funding as well as fixed interest rates, which are particularly attractive for project and infrastructure financing.
As a multilateral organization, the IADB enjoys preferred creditor status, which means that debtors have generally been permitted by their governments to make payments to the multilateral despite the imposition of foreign exchange controls or other economic dislocations.
As a result, the rating on an IADB transaction is not constrained by the sovereign foreign currency rating, but instead can be assigned a foreign currency rating equal to that of the local currency rating of the issuer.
In this way, the IADB's preferred creditor status allowed TGS to apply its local credit rating (triple-B by Duff & Phelps and triple-B-minus from Standard & Poor's) as the rating for the transaction. "Using TGS's local ratings as the rating for the deal, enabled the bank to access the U.S. private placement market and get competitive pricing," said a source close to the offering.
The TGS transaction was in the market simultaneously with Telefonica del Peru's OPIC-backed deal and ultimately benefited when the latter was pulled out.
"I believe that there was enough room for both transactions, but the results show the strength of the IADB umbrella," said a source. "It is a structure that investors know and like. I think that OPIC needs to focus on educating the investors so that their product can take off more successfully."
However, some investors prefer traditional securitizations to B-loan participations. "If we had to chose between doing a securitization of export receivables or doing a multilateral-backed deal we'd choose the securitization, provided of course that we like the company," said an investor who participated in the TGS deal.
"The advantage of securitizations is that the deals are opened to negotiations. Amendments, consents and wavers are under our control whereas with the IADB structure the only things that are discussed with the participants are issues relating to payments and note tenors. In addition, an export-receivable securitization has discernible dollar-flow patterns. With the B-loan deals you are relying on the preferred creditor status."