The Municipality of Cuautitlan Izcalli will receive a MXP71.5m 15-year enhanced loan from Interacciones. The loan will pay a spread of 235bp over TIIE and is payable through a trust, to which the municipality has pledged the rights and flows of 8% of its federal participation transfers. It has been rated Ba3/A3.mx by Moody’s due to the underlying creditworthiness of the municipality and the legal and credit enhancements embedded in the loan. These include a strong trust structure, the estimated cash flow generating solid debt service coverage ratios, and a solid level of reserve funds that represent a 3x debt service coverage. The rating is affected by risk from the State of Mexico, as the state funds the trust. However, this is offset by the state’s strong governance and management practices and legal barriers that prohibit the state from interfering with municipal transfers, adds Moody’s.
Category: Economy & Policy
Interacciones Signs Loan For Veracruz
Mexico’s Interacciones has given the State of Veracruz an MXP3bn 15-year enhanced loan, with a 2-year grace period. The loan will pay a spread of 340bp over TIIE, and is payable through a trust, to which the state has pledged the rights and flows of 7.5% of its participation revenues. Moody’s has assigned the loan a Ba1/A1.mx, which reflects the underlying creditworthiness of the State of Veracruz, rated Ba3/A3.mx and because of the legal and credit enhancements embedded in the loan. These include a strong trust structure, the estimated cash flow generating solid debt service coverage ratios, and a solid level of reserve funds, says Moody’s. The agency adds that it also takes into consideration the absence of adjustments to the state’s fiscal policy framework, which it highlights as a credit challenge.
Uruguay Growth to Slow, Says IMF
The IMF is projecting real GDP growth of 8.0%-8.5% this year, slowing to 5.0% in 2011 and 4.0% thereafter. “Sustaining growth at 4.0% a year over the medium term will require investments to overcome infrastructure gaps and enhance the skills of the labor force,” says the fund in a statement following a visit to Montevideo. The IMF says it welcomes the 2010-14 budget’s focus on reducing public debt, its broad spending priorities (infrastructure, education), and creation of a fund to shield the budget from weather-induced fluctuations in the cost of producing electricity. “A more conservative fiscal stance in 2011-14 – via slower growth in current expenditures—would be feasible and would help moderate domestic demand further, reduce real exchange rate appreciation pressures, and reinforce the government’s objective of reducing the public debt,” it adds. The IMF notes a risk of a worse global or regional economic outlook. The statements follow an IMF Article IV mission headed by Ulric Erickson von Allmen, advisor in the IMF’s Western Hemisphere department.
Mexico Expands IMF FCL Access
Mexico is replacing a $47bn 1-year precautionary flexible credit line (FCL) arrangement from the IMF with a $73bn 2-year line, according to the fund. The sovereign is not expected to draw on the line, which is cheap insurance that should boost the MXP, says Goldman Sachs. “If the country ends up drawing funds the current effective interest rate under the FCL ranges between 2.1%-2.7% for access between 500% and 1,000% of quota [$32.5bn-$47bn], rising to about 3.4% after three years of use (plus a 50bp flat service charge),” it adds. “Longer duration and higher access available under the reformed FCL can play an important role in continuing to support Mexico’s policy strategy and in maintaining external confidence,” says IMF MD Dominique Strauss-Kahn. He adds that Mexico has strong policy frameworks, including inflation targeting, a flexible exchange rate regime and a balanced budget rule. “While Mexico was significantly affected by the global financial crisis, the authorities responded resolutely and effectively, and a recovery is now underway,” says the official. The FCL was established on March 2009 for countries with very strong fundamentals, policies, and track records of policy implementation. In August, it was amended to allow a 2-year deal at a higher amount. The repayment period is 3-5 years. Mexico’s first FCL was approved in April 2009 and renewed in March. Poland and Colombia have also established precautionary arrangements under the FCL.
LatAm Exports Seen Growing 29%
The IDB forecasts that LatAm’s exports will have increased by 29.0% in 2010 to around $853.0bn. A year earlier they had dropped 23.0%. Intra-regional exports grew 27.0%, while extra-regional flows expanded nearly 30.0%. Intra-regional trade as a share of LatAm’s total trade with the world stands at an estimated 17.5%, slightly lower than last year’s 17.8%. Paraguay led the Mercosur regional grouping with 39.7% growth in exports, while Brazil, Uruguay, and Argentina saw their exports grow by 29.7%, 24.6%, and 24.0%, respectively. Exports by Peru grew 35.2%, Ecuador 28.8%, Bolivia 27.5%, and Colombia 21.2%, while Chile’s exports rose 38.5%. Mexico’s exports are projected to grow by a third this year. In CentAm, Nicaragua’s exports increased 30%, while Guatemala, El Salvador, Honduras, and Costa Rica grew at respective rates of 16.0%, 15.9%, 13.8%, and 9.1%.
Interacciones Issues MXP Bond
Interacciones issued MXP1.5bn 3-year unsecured bonds on Wednesday, 5bp tighter than the guidance, according to a banker on it. The bonds were priced at 125bp over TIIE, through guidance of 130bp over TIIE, after receiving MXP2.2bn of demand from 32 tickets. Proceeds will be used to expand the credit portfolio. The bonds are rated A1 on a national scale. Interacciones and HSBC were joint leads. Interacciones is planning to issue a covered bond early next year, adds the banker.
CFE and Interacciones to Issue MXP
CFE will issue a 4-year floating and 10-year fixed rate bond today, for up to MXP14bn, according to a banker on the deal. Guidance for the floater is in the 30bp over TIIE area, and on the fixed rate 120bp area over Mbonos. Banamex, BBVA Bancomer and ING are bookrunners. The bonds are rated AAA on a national scale. The transaction had been planned for mid-November, but the issuer opted to await a less crowded market. The transaction is the first from a new program. Use of proceeds is general financing purposes. Meanwhile, Interacciones will issue MXP1.5bn 3-year unsecured bond, according to a lead banker. Guidance is 130bp area over TIIE and the bonds are rated A1 on a national scale. Interacciones and HSBC are joint leads. The bonds will be used to finance expansion of its credit portfolio.
Arca Prices Tight MXP Bond
Mexico’s Embotelladora Arca has priced an MXP3.5bn dual tranche deal via HSBC. A MXP1.0bn 5-year floating rate tranche priced at TIIE plus 29bp, tight to guidance of 35bp-40bp over TIIE, after it was 2.4x oversubscribed, according to a banker on the deal. A 10-year fixed rate tranche priced at Mbono plus 114bp, versus guidance of 120bp-30bp over Mbonos. The bonds are rated AAA on a national scale. HSBC was sole bookrunner. Proceeds will be used to pay down bank debt, according to a regulatory filing.
Kuo Hits MXP Bond Target
Mexico’s Grupo Kuo has priced a MXP700m 2015 at 260bp over 28-day TIIE, in line with 260bp-270bp guidance. The first payment will be 7.44%, according to the prospectus. The bonds have a BBB + rating on a national scale and are from a MXP2bn program. IXE and Banorte led. Proceeds will be used to refinance liabilities and for other corporate purposes. KUO has holdings in the consumer goods, chemical and automotive industries.
Ally MXP Bond Pricing Tightens
Ally Credit, the Mexican auto financing company, priced a 1.5 year, MXP1bn bond on Tuesday, at 120bp over TIIE, tight of guidance of 150bp over TIIE. Ixe and Scotia were bookrunners on the deal. The deal was more than 3 times oversubscribed, with treasuries, investment funds, private banks and retail banks taking tickets, says a banker on the deal. The bonds are rated AAA on a national scale. Proceeds will be used to finance auto loans.