Hospital Looks to Continue Mexican ABS Expansion

Mexico’s domestic ABS market appears set to see a continued expansion in bonds backed by public service contract receivables, with a health services provider eyeing a transaction and others likely to follow. A prison contract securitization from builder ICA last year broke new ground in the space, and bankers and investors have been expecting others with government deals to monetize their future payments. Desarollo y Operacion de Infraestructura Hospitalaria de Ixtapaluca (DOIHI) plans what would be Mexico’s first transaction backed by hospital service contracts, according to sources familiar with the matter. The 22-year notes are guaranteed by future payments from contracts the specialty Ixtapaluca hospital has with Mexico’s health ministry to operate hospital facilities. The transaction is expected as soon as January, following a preliminary investor presentation last month, and should have a size of up to MXP1.8bn ($140m). “The scheme helps to develop and construct infrastructure in Mexico in association with the private sector in Mexico,” says a person familiar with the transaction. The project is one of various contracts the government has awarded for hospital services. Some of the others would, like ICA’s, involve construction, and might also be securitization candidates. ICA’s Sarre and Papagos units sold MXP7.1bn in 21-year bonds backed by contracts to construct and operate two prisons in September 2011, the first domestic bond to fund a project with construction risk. The key for all transactions is the contract the issuer has with the government entity. At the time, DCM bankers fully expected more public service contract securitizations to follow ICA, noting the sector is unimportant, as long as there is government support. The DOIHI transaction is expected to target typical long-term investors such as Afores and insurance companies. Banamex is leading the deal, rated AAA on a national scale. The hospital is located in the state of Mexico, west of Mexico C