Mexican Preps Domestic Toll Road Securitization

Mexico’s Red de Carreteras de Occidente (RCO) is planning to begin marketing next week a toll road securitization targeting MXP6bn-MXP8bn ($450m-$600m), according to sources following the process. It would be the first such sale in Mexico since October of last year, the first for RCO – winner of the 2007 road concession originally known as Farac – and would represent a sizeable transaction for a Mexican local securitization market seeking greater supply. RCO is targeting MXP6-8bn, though it could issue as much as MXP10bn, through two tranches. A 15-year fixed-rate peso-denominated tranche has an 11-year average life, and 20-year UDI-denominated UDI portion has a 14-year average life. The bonds are backed by future toll road revenues, and come with a partial guarantee by government development bank Banobras. “There is appetite for long-term bonds and investors are quite comfortable with the plans of the issuer, given familiarity with them from when they issued a CCD [certificado de capital de desarollo] in 2009,” says a Mexico-based investor. The bond market offers a good alternative to refinancing for RCO, which has significant syndicated loan debt, according to sources following the deal. Market conditions are more favorable to issue a securitization of this size and tenor more so this year than last, they note, with more liquidity and appetite now. The project is not only a mature one with years in operation, but also boasts growth potential. The asset offers the fastest road connection between two of the most populous cities in Mexico – Mexico City and Guadalajara. With the roadshow beginning next week, pricing is scheduled as soon as September. Ratings are expected to be AAA on a national scale. BBVA Bancomer, HSBC, Inbursa and Santander are managing the sale, with Goldman Sachs and HSBC as structuring agents. RCO raised MXP6.5bn in the CCD markets in 2009. The domestic market was able to place toll road securitization issuance last year, but not with great size