NEW YORK, May 24 (IFR) - Red de Carreteras de Occidente
(RCO) has put to bed a rare international toll-road bond out of
Mexico, playing its role in developing a new asset class for
corporate peso bonds distributed to both foreigners and locals
and creating more complex project structures.
RCO's Ps7.5bn 15-year amortiser is thought to be the first
such deal out of Mexico since 2006 when the Autopista
Mexico-Toluca toll-road refinanced a Ps4.2bn MBIA-insured 2028
through Nacional Financiera trust. MBIA wraps may have been
discredited during the global financial crisis, but bankers are
betting that there is a decent pool of demand for global peso
deals like this one.
The deal is also another link in the development of what
bankers hope will be an increasingly popular asset class after
telecom company America Movil and then media firm Televisa
proved there is a deep market for broadly distributed blue-chip
Mexican pesos transactions.
RCO differed somewhat from America Movil and Televisa as it
was sold under 144A/RegS format and was not SEC registered, but
otherwise the New York law structure was similar in that it was
euroclearable and facilitated buying by both foreign and
RCO's placement showed that more complex credits could also
be sold under this format, even without broader guarantees from
the likes of Mexican development bank Banobras or OPIC in the
"It needed some legwork from investors to understand the
risks, so this is great news for this new asset class," said a
Given the deal's uniqueness, comps were not easy to find,
leaving leads leaning largely on the 5.75% secondary yield of
America Movil's own 10-year global peso bond and adding a credit
premium for the lower-rated deal, as well as a spread for the
structure and the extension to the 11.3-year average life.
Testing the waters in the low 9 area, the borrower was able
to tightened guidance to 9.125% (plus/minus 12.5bp) and finally
price at par to yield 9%, or Mbonos plus 410bp. Orders were
heard reaching around Ps9.6bn, according people away from the
Some started with Televisa's new 30-year global peso bond
and extrapolated backward to calculate a yield of about 6% yield
for a new 10-year from Televisa.
"It looks like 300bp over Televisa," a banker noted.
Other possible pricing benchmarks in the project universe,
at least with similar ratings, were Colombian infrastructure
utility Emegsa or Mexican wind-farm Oaxaca, but those bonds are
denominated in other currencies.
"There isn't going to be a direct comp," the banker said.
"With Oaxaca, they had an off-take and it was sold more as CFE
risk, and it was in dollars. This is peso and based on projected
Still at 9%, the deal came flat to pricing on a similarly
structured Ps2.84bn 15-year that RCO placed in the local market
late last year at par to yield 9%, although the spread was wider
than the 340bp over Mbonos on that occasion.
With the exception of a Banobras guarantee for 6.5% of the
total amount, the local transaction was almost an exact replica
of the international deal.
At the RFP stage, there had been talk that the international
offering might also require some sort of credit enhancement,
such as a guarantee from local development bank Banobras, or
from OPIC, but, in the end, it was deemed unnecessary, although
rival bankers suggested that the attractive spread over Mbonos
was compensation enough.
Toll roads have had a checkered past in Mexico and the
government took over many of them in the 1990s, not long after a
privatization of the highway system. However, this particular
project has shown a resiliency to economic downturns since the
early 1990s, and can boast "robust and growing" debt service
coverage profiles even under poor scenarios, says Fitch.
The cheap labor costs that allowed transportation companies
to take slower side-roads in the past and, hence, reduce traffic
is also less of a factor now, while heightened security needs
have also encouraged drivers to pay for safer highways, said an
investor looking at the trade.
In light of the recent local issue, some bankers were
wondering about the strength of the local bid, which was
important for some foreign accounts that find comfort in this
extra pool of liquidity. Mexican construction firm ICA, which
was recently downgraded to B2 and has an ownership stake in RCO
alongside Goldman Sachs, had also come up in discussions about
"It is going to be interesting, with the ownership, the
currency and the local market having bought a lot of this
financing," said a rival banker. "ICA has a majority
shareholding. Will that have an impact?"
The 15-year amortizing bond has a six-year principal grace
period and a weighted-average life of 11.3 years. There is a
12-month debt-service account, a five-month reserve account for
major maintenance, as well as restrictions of distribution
payments whenever the debt service cover ratio is under 1.25x,
or if there is an event of default, according to Fitch.
Proceeds are partly going to prepay bank debt. Collateral
includes a trust estate, RCO stock held by all shareholders, as
well as certain tangible and intangible assets, but not rights
under the concession agreement.
The leads were BBVA, Goldman Sachs, HSBC and Morgan Stanley.
Ratings are BBB/BBB- (S&P/Fitch).
For other related fixed-income quotations, stories and
guides to Reuters pages, please double click on the symbol:
U.S. corporate bond price quotations...
U.S. credit default swap column........
U.S. credit default swap news..........
European corporate bond market report..
European corporate bond market report..
Credit default swap guide..............
Fixed income guide......
U.S. swap spreads report...............
U.S. Treasury market report............
U.S. Treasury outlook...
U.S. municipal bond market report......