While a recent toll road transaction that came out of Panama earned cheap financing for originator ICA Panama, sources don't expect peers in the region to rush into the global markets. "Mexican toll roads are always exploring [the cross-border] option, but the problem is the currency mismatch," said one Mexico City-based analyst. The Panamanian deals underlying flows are in greenbacks, as the country's economy is effectively dollarized.
The bulk of toll road deals that have emerged in Latin America in the past several years have come from Chile and Mexico. All of those have been domestic, given the local-currency denomination of the flows and growing liquidity of local investors. Originators in these markets are not expected to be tempted abroad anytime soon.
Corredor Sur Trust, as the Panamanian deal is known, was sized at $150 million, with a tenor of 20 years and average life of 14. Led by Merrill Lynch, the deal priced at 7.01% at par based on a semi-annual schedule, according to a source close to the deal. Coupon payments are quarterly and the settlement date was May 25. Some 15 accounts bought into the deal, with private local investors among them, the source said. Fitch Ratings, Moody's Investors Service, and Standard & Poor's rated the transaction BBB', Baa2,' and BBB-', and, respectively.
The transaction is understood to be the first cross-border toll road bond out of Latin America since Mexico's so-called Tequila Crisis of the mid 90s rattled foreign investors. At that time, a sharp devaluation of the peso and a plunge in vehicular traffic weakened cross-border toll road bonds on two fronts. The drop in the currency strained the ability of the peso-denominated flows to cover the dollar payments, while the thinned-out traffic dried up those flows to begin with. As a result, some paper defaulted, souring many investors on the asset class. Since then, the sector has only made an impact domestically, where currency mismatch is not a concern.
Corredor Sur is backed by toll road rights. Proceeds from the deal will refinance $50.6 million outstanding debt with the International Finance Corp., which is what remains of a $70 million loan the IFC granted the originator to pay back bridge loans in September 1999. Other proceeds are going to fund an equity re-imbursement to the concessionaire's direct parent, ICATECH Corporation, based in Florida. ICATECH is, in turn, owned by Empresas ICA Mexico.
ICA Panama won a 30-year concession to build and operate the toll road in 1996. The highway became fully operational in February 2000. The concession agreement allows ICA to jack up toll rates by 25% per year from 2002 to 2008, according to a Fitch report. After 2008, the operator can hike tolls only with approval from the Ministry of Public Works. Fitch pointed out in its report that traffic flow has been sensitive to the increases. Among the deal's strengths are minimal construction risk, the strong established traffic flows, and the relatively conservative forecasts for revenue and traffic, according to Fitch.
The road operated by ICA has four lanes and links Tocumen International Airport to Panama City.
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