Mexican Borrowers Clean Up at This Year’s Latin America Deals of the Year Awards

Mexico’s political environment and markets experienced unprecedented levels of volatility in 2018, but against that backdrop borrowers took to the markets to launch landmark transactions that still broke barriers and paved the way for others to follow.

Feb 6, 2019 // 8:55AM

The challenging market environment – driven largely by delicate NAFTA negotiations, election uncertainty, souring emerging market sentiment and rising interest rates – was enough to delay or prohibit fundraising plans for many borrowers, leaving hard currency bond volumes subdued while bank lending and overall credit demand flatlined. That so many borrowers still took the opportunity to break new ground on innovative funding programmes and achieve a number of firsts despite the volatility is even more impressive.

The Market Insights team and GFC Media Group would like to thank all of the finance professionals who nominated transactions for this year’s Latin America Deal of the Year Awards, and for deal teams’ tireless efforts in helping borrowers achieve their core objectives, at the same time developing new structures & techniques to help push the industry forward.

And, last but certainly not least: congratulations to all of this year’s Awards winners. With so many high-quality deals nominated from Mexico and the wider region, this year’s Awards selection was more difficult than ever before. And in view of our Bonds, Loans & Derivatives Mexico conference taking place February 7 at the Four Seasons in Mexico City, we wanted to take a closer look at some of the landmark transactions deserving of recognition and originating from one of Latin America’s deepest and developed markets.

Adopting a unique structure not often embraced by non-financial corporates, Grupo Bimbo’s inaugural hybrid subordinated perpetual notes achieved a number of key milestones for the region’s markets and the borrower – including improved balance sheet efficiency due to the instrument’s 50% equity treatment from major rating agencies, which helped bolster the company’s deleveraging story. The strong pricing, particularly given the adverse market conditions and the challenge of finding comparable securities, is a testament to the razor-sharp timing of the deal’s execution. It was also the first hybrid security issued by a Mexican consumer company, and a rarity in the region’s wider international capital markets, paving the way for future transactions and broadening the 

Amid a fairly volatile political and economic environment given the recent presidential elections in Mexico, leading glass manufacturer Vitro was able to successfully refinance its existing debt facilities, while extending its debt maturity profile, reducing its interest expense cost and improving its overall terms and conditions – several key wins for the borrower. The quickly-executed facility had an initial margin of LIBOR+2%, allowing the company to reduce interest payments by close to USD12mn per year. The deal was oversubscribed by 60%, and saw the participation from a healthy mix of local, regional and international lenders, allowing the company to further diversify its sources of funding.

This highly structured multi-tranche loan to finance the El Encino gas pipeline, a critical part of Mexico’s energy reform and transition to cleaner and cost-efficient power generation, saw the borrower blend cost efficient commercial debt (with shorter tenor) with very competitively priced 24-year private placement notes that left less than 1-year of tail under the offtake agreement. The sponsor was also able to increase leverage from the original project financing (mini‐perm) and receive a meaningful dividend recap at financial closing. The blended fixed-rate notes and commercial loan, a rarity in the country’s oil & gas sector, resulted in a highly efficient permanent financing structure that helped the borrower achieve all of its key objectives while carving a path for future similar transactions.

Issued as part of a wider deal by Cometa Energía S.A. de C.V., an indirect wholly-owned subsidiary of Actis LLP, to acquire InterGen Mexico, these structured 144A/RegS notes included a tailored amortisation profile based on varying DSCRs for contracted cash flows, uncontracted cash flows and cash flows from a joint venture, as well as a traditional cashflow waterfall (including Debt Service Reserve and O&M Reserve Accounts). The flexible covenant package combined with the borrower’s strong balance sheet allowed the notes to secure an IG rating affirmation. The overall acquisition financing deal included the USD860mn structured notes, along with USD316mn in sponsor equity, a USD60mn revolving credit facility, and USD120mn in letters of credit.

Unifin’s inaugural perpetual bond was priced attractively for investors and marked one of the first transactions to reopen the Latin American perpetuals market. The execution followed an extensive two-week roadshow covering key EM real money managers in Los Angeles, Hong Kong, Singapore, London, Geneva, Zurich, Boston and New York, which paid off in the form of strong demand from a well-diversified set of investors; at its peak, the orderbook reached USD1.5bn, allowing the issuer to upsize the deal by USD50mn and still price 37.5bp inside initial guidance. The offering significantly improved Unifin’s capital structure and strengthened its credit profile.

Faced with the task of financing the Mexico-Puebla toll road, Mexican Federal Government Trust fund Fondo Nacional de Infraestructura (FONADIN) managed to achieve extremely tight pricing through the sale of a one-of-a-kind asset-backed security – a feat made even more impressive given the market backdrop and tense NAFTA negotiations ongoing at the time. The deal team was able to market the transaction at benchmark size, a first in the local market, and the structure – heavily influenced by those seen in the US structured securities markets – enabled FONADIN to attract a broad swath of investors, culminating in the largest transaction of its kind in Mexico and Latin America and the tightest pricing for a toll-road to date in Mexico.

Americas Deals Mexico Latin America

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