A government-sponsored fund for Uruguay's bus companies has found a new kind of vehicle. Set up to refinance debt owed by the sector, the Fund for Financing Urban Transport in Montevideo is using a securitization SPV to raise the local currency equivalent of up to $22.5 million in a ten-year bond. Denominated in inflation-indexed units, the yield is capped at 8%.

The trustee is EF Asset Management and the structuring agent is CPA/Ferrere, both affiliates of Ferrere Abogados. Issuance is timed for the first half of October; the deal is currently in the final stages of receiving approval from regulators, according to Diego Rodriguez, a partner at Ferrere. The custodian and payment agent is Discount Bank Latin America, a unit of Israel Discount Bank of New York. Fitch Ratings has given the deal a preliminary rating of A-(uy)' on the national scale.

Prior to issuance, the trust will receive the rights of flows from two companies into the fund, which was set up in December 2003, according to a report by Fitch. Those flows consist of the 5% of gross ticket sales that companies with urban transportation concessions from the government are obligated to deposit in the fund.

The ones that have agreed to participate in the transaction are bus operators Cutcsa and Raincoop. The proceeds from the bond will be used to refinance debt ultimately owed by these two companies, Rodriguez said. "It was taken out to renew their bus fleet," he added. Cutcsa and Raincoop account for about 70% of the public transport market in Montevideo. The other concessionaires that contribute to the fund, Coetc, Ucot, and Come, are not part of the current deal.

The transaction's credit strength is buttressed by the rules that govern a subsidy that the Municipality of Montevideo pays the transport companies to make up for lower revenue from discounted users like retired passengers and students. Over the past 15 years, that subsidy has amounted to an average of 10% of ticket sales. If a transport company fails to contribute its 5% of ticket revenue to the fund, then the municipality withholds its subsidy to that company and makes the corresponding fund contribution itself. The difference between the fund contribution and the subsidy is then given to the offending company. Since the subsidy has historically exceeded the 5% required contribution, this rule lends the transaction greater security. It also binds the municipality to the deal's performance.

(c) 2005 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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