Mexico's Tribasa lays past to rest

May 26, 2003, 12:00 a.m. EDT 5 Min Read

Following the lead of other toll-road operators, Mexican construction conglomerate Grupo Tribasa plans to tap local investors for Ps1.94 billion (US$189 million) on May 28. In the process, the company will leave behind an ugly drama played out in the sector since the mid 90s, as a chunk of the deal will be used to retire a US$110 million 144A issued in 1993, a company source said.

For Mexican toll-road bonds, the financial fallout from the Tequila crisis in late 1994 was downright vertiginous. A mega-devaluation of the peso and a sharp slowdown in vehicular traffic provoked defaults of dollar paper issued by the sector during the early 90s and U.S. investors took a nasty hit. Since then, highway bonds have come back, but only in the domestic market.

Salomon Brothers underwrote the Tribasa deal marked for retirement. It carries a 10.5% coupon and is a 2011 bullet. Unlike its peers, the paper made timely payments, though the reserve fund dipped below the required minimum. "We experienced what's called a blocking event', but there was never a default," the company source said, adding that, to the best of her knowledge, the transaction was unrated.

Over the last few years, issuers across Latin America have swapped dollar for local currency debt to ward off currency mismatches.

The 144A and the replacing peso deal are securitizations from toll roads administered by Autopista del Pacifico and Promotora y Administradora de Carreteras, both concessions held by Tribasa. Pacifico administers a chunk of highway between the cities of Armeria and Manzanillo. Promotora y Administradora manages a stretch from Ecatepec to Piramides.

For the upcoming transaction, BBVA Bancomer is the structurer and lead placement agent; Deutsche Bank and Banc of America are co-issuers. The transaction carries the first monoline wrap in the domestic market, with MBIA doing the honors. Due to this novelty, four law firms are involved instead of the usual one firm. The advisor on the overall program is Kuri Brena, Sanchez Ugarte, Corcuera y Aznar. BBVA in turn used Gaxiola, Moraila y Asociados, which was counsel for a toll-road deal priced on Feb. 4 (see ASR 2/17, p.19). Lacking a local presence, MBIA made sure to lean heavily on legal advice. Debevoise & Plimpton advised the insurer on the U.S. side, while White & Case provided domestic counsel. "MBIA used locals as well to feel comfortable with the Mexican legal system," said a source on the deal.

Fitch Ratings and Standard & Poor's are rating the deal, which will receive triple-A on the global scale thanks to the surety, sources said. The denomination is in UDIS, an inflation index.

Much of the talk on the transaction has centered on pricing and how Mexican investors will appraise a deal that is effectively higher rated that than their own treasuries. S&P, Moody's Investors Service and Fitch rate Mexico A-'/ Baa1'/'BBB' in local currency rating on the global scale.

BBVA is going for a yield of 20-25 basis points over the government's 10-year UDI bonds, according to a source on the transaction. That would price it tight to plain vanilla deals rated triple-A on the national scale, which normally beat out structured transactions in the pricing game. One thing is clear about the wrapped deal: Mexican investors will not accept a return below treasuries, no matter how safe the paper. The liquidity premium enjoyed by government bonds is one of the main reasons, sources said.

Pension funds are expected to swallow the lion's share of the float. While U.S. investors have asked about the deal, BBVA will not sell the bond across the Rio Grande. The cross-border interest was not strong enough to justify the bureaucratic effort required for regulatory approval from the S.E.C., a source said. "Maybe next time," he added.

Subnationals press on

A brief issuance calm in the subnational sector was broken by the state of Guerrero, which placed a 12-year final, Ps860 million (US$83.8 million) bond on May 16. The transaction set a new longevity benchmark for muni and state deals. "This is probably going to persuade other (issuers) to push out maturities," said a source on the deal. The average life was 7.5 years; Interacciones was structurer and lead placement agent. Arka and Santander Serfin were co-issuers.

To coax investors into this long-term commitment the paper was structured as a flexible floater. The yield is 100 basis points over the highest of the following five benchmarks: one-month, three-month and six-month Cete treasuries and one-month or three-month TIIEE. "That helped give investors the security they wanted," the source said. The buyers of the transaction were a dispersed lot. Apart from the pension funds, mutual funds, banks and even retail bought in.

The transaction marks Guerrero's first visit to the market. The state used the sub-national asset of choice to back the deal: federal participation revenues disbursed by the central government. The issuing trust is trapping the full amount of those flows. All three international ratings agencies gave the transaction a double-A plus on the national scale.

Guerrero had initially hoped to unload the entire bulk of a Ps1.5 billion (US$146 million) program in a single issue, but later decided to parcel it out to avoid overwhelming investors. The remaining Ps640 million (US$62.4 million) is scheduled for June, said a banker on the deal.