December 5, 2018 / 11:21 PM / 6 days ago

Mexico airport bond buyback hits resistance from investor group

MEXICO CITY, Dec 5 (Reuters) - A group of investors in bonds issued for the construction of a new Mexico City airport that the government is scrapping has pushed back against a buyback of the debt.

Mexico said on Monday that it would buy back up to $1.8 billion of $6 billion in debt issued to fund the airport.

The leftist government of President Andres Manuel Lopez Obrador, which took power on Saturday, has said it is canceling the partly-built project.

But a group represented by law firm Hogan Lovells, calling itself the “MexCAT Ad Hoc Bondholder Group,” said late on Tuesday it was not consulted on the tender offer, and could not support it.

The Mexico City Airport Trust’s offer allows holders of four series of bonds to sell them back at between $900 and $1,000 per $1,000 principal, and seeks consent to remove some covenants and events of default relating to the canceled hub.

In a statement, the ad hoc group said it and other bondholders in contact with Hogan Lovells were “understood” to hold over 50 percent in principal amount of at least one of the four series, and were prepared to talk to the trust to discuss their concerns.

Among other things, the concerns relate to the trust’s intention to remove events of default from the bond contracts, as well as possible reductions in collateral under certain circumstances, such as if an alternate Mexico City area airport is developed, it said.

The new government has said it wants to develop a cheaper hub instead of the $13 billion airport.

Gerardo Ferrando, the new director of the Mexico City Airport Group, told local radio the government would be prepared to discuss the matter with investors.

Ferrando said that the passenger revenue streams used to cover the interest payments on the debt are “way above” the levels required to meet those obligations.

Lopez Obrador said on Oct. 29 he would cancel the airport project, arguing it was tainted by corruption and would be expensive to maintain.

Deputy Finance Minister Arturo Herrera said on Tuesday the Mexican government hopes the repurchase of bonds can be largely wrapped up before the 2019 budget is presented on Dec. 15. (Reporting by Mexico City Newsroom, Editing by Rosalba O’Brien)

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