Peruvian Lands Securitization

A project for Peruvian government-backed health service EsSalud has raised $229.4m through the sale of 2029 bonds. Utilizing a structure similar to IIRSA’s 2008 road construction financing, the Peru Payroll Deduction special purpose vehicle has issued a zero-coupon bond, which ultimately provides investors with a return equivalent to a 5.5% yield, in line with 5.5%-area guidance. Investors were heard putting in for about $500m in orders, with buyers coming 33% from LatAm, 33% from the US and 33% from Europe. The transaction is backed by certificates, known as “retribucion por inversiones – certificado de avance de obras” (RPI-CAOs), to receive payments from EsSauld related to the construction and equipment provision of 2 hospitals and 2 medical distribution centers in Lima. The RPI-CAOs provide future cash flows in aggregate of approximately $230m. The certificates are purchased by the special entity, with the expected proceeds of $150m at the present value discounted at 5.5%, reflecting a price of 63.72. The payments are guaranteed by the future flows of mandatory deductions made by EsSalud from the payrolls of Peruvian workers. “There are not that many opportunities to use this type of structure, as it requires receivables for government-backed payments in dollars,” says a banker close to the deal. Bank of America Merrill Lynch managed the RegS-only sale, rated BB+/BBB minus. It was a mixed day for structured deals in LatAm, with Global Bank having to postpone a $200m covered bond sale.