MBIA has made a debut placement off its Mexican shelf, the first issuance program a guarantor has set up in pesos. The kickoff deal, for toll road operator Promotora y Administradora de Carreteras (Pacsa), came to 1.5 billion UDIS ($500 million), with 1.1 billion in senior notes wrapped by MBIA. That’s just a nick in the five-year shelf, which is capped at Ps25 billion ($2.3 billion).
The program speaks to MBIA’s desire to streamline the structuring and placement of deals, generate liquidity for its transactions, and work closely with issuers. “It gives us access to the market in a very short time,” said Eugenio Mendoza, head of Latin American business at MBIA. “In Mexico, the approach is that we’re structuring our own deals.”
Issued April 7, the Pacsa transaction priced at 5% for the senior piece and 8.85% for the 399-million UDI subordinated notes. The senior paper has a maturity of nearly 22 years, while the subordinated tranche is termed out to almost 24. Fitch Ratings, Moody’s Investors Service, and Standard & Poor’s rated the senior portion triple-A on their global and national currency scales. Only S&P rated the subordinated tranche, which stood at mxA-‘ on that agency’s national scale. BBVA Bancomer and HSBC led the deal.
The transaction collateralizes toll road receipts generated along a 19-kilometer stretch of highway linking the Federal District and Toluca, a city in Mexico State. Pacsa signed its first concession contract with the government to operate the road July 31 1989, but the terms of the concession have changed a number of times. Most recently, the parties agreed to extend the life of the concession to July 4, 2030.
Proceeds from the deal will go to retire an MBIA-wrapped bond that Pacsa issued Sept. 25, 2003 for a total 1.46 billion UDIs. Remaining funds will go to build additional toll booths, install other equipment, and finance capital expenditures. By pushing out the project’s debt profile – the initial bond had a final maturity of a little over nine years – the operator has cut its annual debt service, allowing it to slash tolls on the road by an average of 40%, according to an MBIA press release. The drop in tolls will naturally increase usage, the insurer said.
Pricing on the wrapped tranche was roughly 60 basis points over Mexico’s treasury curve. Rated triple-A on the global scale, the senior piece is effectively safer than domestic treasuries, which are constrained by sovereign’s ratings of BBB’ Baa1′ and BBB’ by Fitch, Moody’s and S&P, respectively. Despite this, Mexican investors still demand a premium over treasuries for this kind of paper – a function of the liquidity advantage of government bonds, and perhaps an indication that local buyers aren’t giving full value to the monoline wrap.
While MBIA’s shelf will focus exclusively on Mexican infrastructure, Mendoza said the monoline insurer is open to wrapping deals outside the program in other business lines.
MBIA has insured over $5 billion in Mexican transactions since 1994. In the public realm, the company has stuck to the toll road sector over the past few years, having wrapped deals that are part of a second wave of issuance from the sector. Fueled largely by dollar-denominated issuance, the first wave unraveled with the devaluation of the peso in the mid 90s, as operators struggled to make payments. Having learned their lesson, issuers are now sticking to peso funding.
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