When the Panama Canal Authority (PCA) sold a 20-year bond for $450 million in September 2015, it managed a feat rarely seen in Latin America. The sub-sovereign issuer got higher credit ratings than the sovereign, allowing it to price a long-term bond at a lower spread.

The bond, rated A2/A-/A, was priced at 220 basis points over US Treasury notes, to yield 5.09%. The spread stood around 15 basis points inside where Panama would have priced a new 20-year bond.

The competitive pricing on the almost benchmark-size transaction, with the proceeds going to finance the construction of a third bridge over the canal, made the bond deal the choice for LatinFinance’s award for Best Infrastructure Financing: Central America.

When the bookrunner Bank of America Merrill Lynch (BAML) marketed the bond, it had to prove to the ratings agencies and investors that the PCA operated independently of the government. It worked. Orders for the $450 million deal reached roughly $2 billion.

“The investors included many of the typical emerging market buyers,” says Carlos Iván López, managing director at BAML. “Some large investors decided to stay away but in the end it was mostly high-grade infrastructure investment funds and municipal bond buyers in the US, people who understand the structure. That gave us a lot of comfort for the secondary market.”

The PCA went straight for a long-term bond issue because it wanted to delay repayments until after it had finished paying off the $2 billion in loans it received to expand the canal, López says. “The bond market is the most efficient,” he says. “The loans are amortizing for the next 15 years, so the PCA wanted to push the financing for building the bridge until after that.”

Now building the bridge is fully funded, the PCA can rely on rising cash flows to pay dividends to the government or make new investments, López says.

But the bond issue could have a positive effect on financing more infrastructure investments in Panama. Since the expanded canal opened in June, the PCA has plans to grant port terminal concessions on land it owns near the waterway. 

The agency qualified four bidders earlier this year for a 20-year port terminal concession that requires an estimated $800 million in investments and it could open the bidding process for a new automobile transshipment terminal. LF

WINNER: Panama Canal

PROJECT: Panama Canal

LOCATION: Panama City, Panama

FINANCING TYPE & SIZE: $450 million bond

BANKS: Bank of America 

Merrill Lynch

LAW FIRMS: Perkins Coie, Shearman & Sterling