Veracruz Returns for Local Securitization

Veracruz has returned to Mexico’s domestic bond market, addressing a small bit of its refinancing needs with a MXP4.86bn ($369m) three-tranche securitization of future federal payment flows. Though the issuer raised less than it could have, bankers and other states are hopeful the transaction signals a reopening for sub-sovereign entities to issue in the local market. A MXP1.86bn 2027 fixed-rate peso-denominated tranche with an 11-year average life pays 8.90%, or Mbonos+300bp. A MXP700m 2027 floating rate peso-denominated tranche with an 11-year average life pays TIIE+200bp. A MXP2.3bn 2037 UDI-denominated tranche with a 19-year average life pays 5.80%, or UDIbonos+365bp. The long tranche was the only one of the three that hit the MXP2.3bn limit set for each tranche. Demand ranged from 1.22x-1.25x for each tranche, with Afores, pension funds, insurance companies and bank trading desks driving demand. “The deal shows appetite for sub-sovereign risk in Mexico from institutional investors, but one cannot fail to note that investors are clearly cautious and requiring to get paid to take on the risk,” says a credit analyst following the transaction. The bonds feature covenants that limit debt, and a guarantee from development bank Banobras for up to 45% of each tranche. Proceeds will be used towards the state’s MXP30bn refinancing plan, as it seeks to refinance liabilities and improve its debt profile. Banamex, Banorte-Ixe and BBVA Bancomer managed the deal, rated AA/AA+ on a national scale and the first of its type since the state of Oaxaca priced a MXP1.95bn 15-year Banobras-backed bond in December 2011. Last year, the state’s congress approved the restructuring of MXN 12.6bn in outstanding debt and the issuing of MXN 17.4bn, following several years of poor financial performance.