Mexico’s AGSA Securitizes Wood Contracts

Agropecuaria Santa Genoveva (AGSA) has placed a MXP1.65bn in 2028 securities backed by future flows from wood sales. In what bankers claim to be a novel transaction for the Mexican market, AGSA will pay holders 40% of the revenue from its sales of teak wood, a specialty product used in building outdoor furniture. That is a different pricing method than the traditional yield or coupon format. In the transaction, approximately MXP400m of the proceeds will be used to purchase zero-coupon government bonds that will be worth MXP1.65bn in 2028, which will go toward repaying principal. The remaining MXP1.25bn will be used to expand AGSA’s asset base, with new teak tree acreage going into the existing trust along with the assets at the time of issue. The quasi-equity nature of the deal is important for the issuer’s business plan, as most of the trees in the trust have yet to be planted. The teak trees involved take 18-20 years to reach maturity. AGSA expects sales revenue to approach MXP6bn by 2027, up from MXP100m in 2007, according to a regulatory filing. Demand for the deal matched the issue size of 1.65bn, according to a banker involved in the transaction. The issue was placed exclusively with pension funds, and was designed with the pension regulator’s ABS guidelines in mind. The transaction was rated AAA, based on the use of the government bonds to guarantee repayment of the principal. Credit Suisse managed the sale.