Project finance in Latin America took a leap forward last August following a $400 million loan to build a new terminal at Mexico City’s Benito Juarez airport.
The deal augurs well for infrastructure finance in Mexico – it was the longest project loan of its kind in Latin America, and was made on highly competitive terms by HSBC, Citigroup-Banamex, BBVA Bancomer and Banco Imbursa.
Crucially, the financing makes innovative use of the airport’s current overcrowding by collateralizing the debt repayment against airport tax revenues. This, together with backing from government development bank Nafin and Banobras, helped the deal’s competitiveness: the floating rate debt was priced at 100 basis points over Libor, and was swapped to give a fixed rate of 5.6%, only 50bp higher than Mexican government risk. The 10.5-year tenor is the longest for this type of facility on the continent.
“This was something quite new for us,” said Alfonso Fierro Garza, managing director of Banamex. “Dealing with this type of concession, the support of Nafin was ... very important.”
Nafin and Banobras mitigated tariff risk by agreeing to cover any shortfall if airport tax drops below $7. The tax – $13 for domestic passengers and $16 for international passengers – is set by the transport ministry, and provides the state-owned Mexico City Benito Juarez International Airport with $125 million a year in revenue.
The other risk to airport tax revenue is a decline in passenger numbers. This is low, with growth in passengers projected at 4% to 5% a year between now and 2015. However, the loan is designed to protect lenders against construction of an alternative airport, decentralization of flights and extension of airport tax exemptions.
The commercial banks were invited by Nafin – which served as financial adviser – to underwrite $100 million each in late 2004. After several months of meetings between the lender banks, Nafin, Banobras, the transport and finance ministries, Benito Juarez airport and the Airport Agency, the deal closed in August 2005.
“It’s usually a simple matter to sit down and align two firms’ or agencies’ objectives,” said Fierro. “But there were so many partners here. The success is that all four banks got the transactions through.”
Mexico City airport is the country’s only publicly-owned airport. Mexico’s three large private airport operators are also candidates for this type of financing, with the added advantage that they are able to set passenger charges themselves, and so have more control over future revenues. Grupo Aeroportario Pacifico is the largest, and runs 12 airports; Azur controls nine in the south-east; and Centro-Norte controls 14 in the north.
Borrower: Mexico City International Airport
Date: 26 August 2005
Amount: $400 million
Sponsor: Mexico City International Airport
Arrangers: HSBC, BBVA Bancomer, Banamex-Citigroup, Banco Imbursa