Blueprint for success
Panama turned to an innovative structure that blended technology from the bond and loan markets to refinance debt falling due in 2020 and 2021 for its metro transportation system.
The deal made it over the line despite coming at a challenging time for the Central American country as it struggled to cope with the coronavirus.
The pandemic hit Latin American countries particularly hard – it had about 20% of the world’s Covid-19 infections despite making up just 8% of the world’s population – and limited access to bank capital has left many nations with fewer financing options.
Citigroup closed a US$315.6m five-year syndicated loan for Metro de Panama (MPSA) in September, but not before installing some complex features into the financing that enabled the state-owned rail operator to forge relationships with new banks and extend its maturing debt to 2025.
Realising that the metro operator needed more than just Panamanian lenders to refinance its obligations, the MPSA set up a special purpose vehicle governed by New York law that not only served as the borrower, but also granted international lenders, such as UBS, the chance to participate in the Citigroup-led syndicate.
The SPV, dubbed Panama Metro Certificates, purchased MPSA’s so-called Certificados de no Objecion that were issued in connection with the construction of the metro system approximately six years ago. These CDNOs were scheduled to mature in the next year and the borrower exchanged them with new CDNOs due in 2025.
Importantly, the nimble financing package’s hybrid structure has created a blueprint for similar transactions in the future.
“We needed to create, or use, technology from the bond market to exchange these notes,” said Adrian Guzzoni, head of Latin America syndicated and leverage financing at Citigroup. “At no point has additional debt been created and this is something that can be replicated on future transactions and other projects from infrastructure companies.”
With an SPV in place, Citigroup targeted roughly 20 financial institutions from around the region and globally. Lenders responded well to the innovative structure and demand reached approximately US$733m.
Banks from Panama, the US, Europe and Japan committed to the five-year syndicated loan at a time when few borrowers from Latin America could obtain loans with the typical five or seven-year tenors seen in years past.
“With the impact of Covid-19, appetite from the bank market has been for shorter maturities,” said Guzzoni. “Given this concern, we built a structure that allowed us to broaden the investor base and complete a five-year deal.”
That novel structure includes a guarantee from the Panamanian government and amortisations in 2023, 2024 and 2025.
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