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CASE STUDY: Mexico City’s new airport launches debut US$2bn green bond

Mexico City’s New International Airport is the second largest airport under construction in the world, and is the largest infrastructure project Mexico has seen in the last decade, with total construction costs estimated at US$13bn. The airport is a strategic asset for the Mexican government, and aims to meet demand for long-term air travel in the country – being intended to serve as an international hub and main point of entry into the country for both passenger and cargo traffic, it will have the capacity to handle 125 million passengers per year at the end of its development phase.

Oct 4, 2016 // 8:26AM

Deal At A Glance

Deal Type: Senior secured dollar-denominated green bond

Deal Structure: 144A/RegS without registration rights

Issuer: Mexico City Airport Trust

Governing Law: New York law

Listing: Singapore Stock Exchange

Global Coordinators: Citigroup, HSBC, JP Morgan

Co-managers: Credit Agricole Securities, Inbursa, MUFG, Scotiabank

Joint bookrunners: Citigroup, BBVA, HSBC, JP Morgan, Santander

Legal Advisors to borrower: Cleary, Gottleib, Steen & Hamilton LLP (US law), Jones Day Mexico, S.C. (Mexican law)

Legal Advisors to global coordinators/co-managers/joint bookrunners: Paul Hastings LLP (US law), Galicia Abogados, S.C. (Mexican law)  

Size: US$2bn (split between a US$1bn 2026 tranche and a US$1bn 2046 tranche)

Tenor: 10-year (4.250% tranche), 30-year (5.500% tranche)

Coupon/margin: 4.250% (10-year tranche), 5.500% (30-year tranche)

Reoffer price/yield: 99.009%/4.372% (10-year tranche), 98.631%/5.594% (30-year tranche)

Spread: UST+275bp (10-year tranche), UST+325bp (30-year tranche)

Date of Issue: September 2016

Use of Proceeds: To finance the construction of Mexico City’s new airport

Background

The US$1bn 10-year and US$1bn 30-year deal is the largest debut offering for a Mexican or Latin American issuer, the largest infrastructure financing in Latin America and the longest dated airport financing globally.

In addition, the transaction is the first from an emerging markets issuer to obtain a GB1 rating from Moody’s, the first to also obtain a strong Second Opinion from Sustainalytics and the first green bond linked to an airport project.

The structure involves special purpose vehicles to service debt and manage cash flows.

The Mexico City Airport Trust is the SPV that will use passenger charges generated by Mexico City’s existing airport, and the new one when it begins operations in 2020, as the source of repayment for the bonds, without recourse or guarantees from the Mexican government, which owns the airports.

The net proceeds from the issuance of the bonds will be used to fund eligible investments in the construction of Mexico City’s new international airport in accordance with a green bond framework agreed by Grupo Aeroportuario de la Ciudad de Mexico (GACM), the new airport’s sponsor.

Transaction Breakdown

An extensive roadshow was conducted, covering more than 100 accounts in Mexico, Hong Kong, Singapore, London, Boston, Los Angeles and New York, through meetings, conference calls and net-roadshows, the latter of which covered over 600 investors.

Following a neutral pronouncement from the US Fed on interest rates in September and amid a robust market environment and sound investor feedback, a dual-tranche transaction was announced at the opening of the Asian markets.

Initial price thoughts were set in the range of the low 300s for the 10-year tranche and mid-to-high 300s for the 30-year tranche.

A high quality order book grew throughout the Asian and European markets and by mid-morning (NYT) guidance was announced at around the 287.5 area for the 10-year tranche, and the 337.5 area for the 30-year tranche. Pricing was eventually set on September 22nd.

Solid momentum and high demand (at its maximum, the orderbook was over US$13bn) allowed the Mexico City Airport Trust to launch the trade at the tight end of guidance – at 275bp for the 10-year tranche and 325bp for the 30-year tranche – on September 29th.

“We were able to create a structure that is non-recourse to the government, and that at the same time eliminates construction risk and gives creditors the upside potential from the construction of the new airport,” said Ricardo Duenas, CFO of GACM.

The two bonds are set to mature on October 31st 2026 and 2046 for the 10 and 30-year tranches respectively. Alongside a GB1 rating from Moody’s, the deal carried a Baa1 and BBB+ rating from Moody’s and S&P Global Ratings and Fitch respectively.

Both tranches saw widespread participation particularly from Europe and the US. The 10-year tranche was distributed 54% in the US, 30% in Europe, 9% in Asia and 7% in Latam. The 30-year tranche was split between 51% in the US, 27% in Europe, 13% across Asia and 9% in Latam.

By type, 67% of the 10-year tranche went to asset managers, 16% to pension funds and insurance companies, 10% to banks and 7% to hedge funds. 61% of the 30-year tranche went to asset managers, 22% to pension funds and insurance companies, 9% to banks and 8% to hedge funds.

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