Cintra has a completed a UF 23.1 million ($565 million) issue of bonds for its Autopista del Maipo concession. The deal is the first time that the risk-sharing mecanismo de distribución de ingresos (MDI) has been implemented on a toll road structure, and the first time a shelf registration has been used for a Chilean infrastructure financing. It is likely to be followed by a host of new financings, since the Chilean Ministerio de Obras Publicas (MOP) will be expecting substantial work from sponsors in exchange for an MDI.

Maipo is already the subject of a $421 million financing in the international dollar markets. That deal, which closed in August 2001, used a foreign currency hedge from the MOP to cope with the mismatch between peso-denominated revenues and dollar debt. That deal, led by Morgan Stanley, and insured by MBIA, was the first Chilean road to access the dollar market.

Maipo is a 266km section of the Ruta 5 (Pan-American Highway) between Santiago and Talca, to the south. It also includes the Accesso Sur, or section of the road leading into the city. The concession is one of the more robust of the non-urban toll road sections, since it includes a sizeable number of commuters. The MOP estimates that it will serve 25 million commuters per year and will have a daily flow of seven thousand local journeys and more than 20 thousand interurban journeys.

The road has a total investment of over $700 million dollars, and Cintra needed to meet the total schedule of works either through additional equity or another debt issue. But the concession, which in its original form was exposed to full traffic risk, was unlikely to support additional debt. Moreover Cintra, which has gone from being a full Ferrovial subsidiary to a part of Macquarie Infrastructure Group (MIG), to a partially floated entity, would rather not fund the full amount of equity.

The solution was the MDI, about which the MOP and Cintra started discussions in early 2002. The MDI essentially takes traffic risk out of the equation, since its central idea is that concession lengths can be altered to accommodate lower or higher than expected traffic growth. As such, according to Cintra Chile CFO Carlos Ugarte, ?the concession resembles a European PPP deal.?

The MDI works by allowing sponsors to extend the concession by a period whose length corresponds to the amount of time it would take to make up the shortfall caused by lower traffic levels, plus an additional 9.5%, which is designed to reflect the sponsor's cost of capital. This process will be repeated, if necessary, up to a fixed present value. (For more details, see Project Finance, Transport Report 2004, p.21, or search ?MDI? on www.projectfinancemagazine.com)

The government expects in return a premium of roughly UF1.9 million (unidades de fomento, an inflation-linked version of the peso) and for Cintra to undertake some additional work. In this case Cintra is building a sewage and wastewater drainage system along the route of some of the road. The new bond issue is required to take care of this work, the original additional work stipulated in the contract, and support the operation of the MDI mechanism.

The 144A bond issue remains in place, with MBIA taking the role of agent, but the new bonds rank alongside the old issue, requiring the lender's counsel to carefully work over the intercreditor issues. Ugarte has spoken in the past of the MDI being a way for Chilean sponsors potentially avoiding using the services of monolines, but in this instance having the two issues of debt provided by the same party was a powerful proposition.

This is the first time that MBIA has established such an umbrella coverage for a shelf registration. The umbrella, as Ugarte explains it, corresponds to what MBIA, by looking at the traffic studies, thinks is the road's maximum debt capacity. This extends to 2034, or roughly five years beyond the concession's original start date. The tail that the government would provide under the MDI, however, is infinite.

The reason for the shelf registration, aside from the perennial problem of avoiding a negative carry on the proceeds, is that the full $450 million shelf will not, under the base case, be required. These bonds will only be required if, under extremely poor traffic conditions, the project company cannot meet interest and principal payments on the existing debt.

The 19-year bonds have a bullet repayment profile, although principal is payable in three instalments in the three years following maturity. They can be issued as and when they are required, although the minimum size of an issue is probably about UF1.5 million. To make payments in the period it takes for the potential bond issue to reach the ideal size, or to tide the borrower over a choppy period in the bond markets, the sponsor has obtained a standby liquidity facility.

This facility, from the bookrunner of the bonds, ABN Amro, has an initial seven-year tenor, and will be automatically renewed provided the credit ratings of both MBIA and ABN Amro stay at AA. This is the first time ABN has provided such a product.

The bonds, which were placed by BBVA, brought in 6 million UF $175 million immediately. Despite the initial unfamiliarity of investors (and regulators) both with the MDI and the concept of the shelf, the deal was 12.16x oversubscribed, and the bonds were ultimately issued at a premium ? the face value of the issue is 5.8 million UF. The bonds' average life is 13.08 years.

The Chilean capital markets have frequently defied expectations. While no sponsor has yet dared to confront them with an issue of below triple-A, all have usually experienced much stronger demand than anticipated. Tranches seen as unusually large have been swallowed with ease, maturities have almost doubled over the last five years, and pricing has become very tight.

One recent deal to go to market, the Autopista Central financing, achieved pricing of 65bp over the Chilean long bond, the BTU. Maipo came in at 29bp over the BTU. This last number explains why Ugarte is still content to work with the monolines.

The MDI structure has not only been used for the circumstances of borrowers like Maipo. The sponsors of the Santiago Airport project used a variant of the enhancement to restructure the concession, which ran into difficulties in the last several years. Cintra is examining the MDI for its other two concessions ? Talca-Chillan and Collipullii-Temuco ? interurban sections of the Ruta 5 that are further from Santiago, and thus not performing as strongly.

But there is no reason why the structure could not be used in greenfield financings, particularly those with a supportive concession awarder but uncertain prospects. One participant noted, however, that extending a concession does not necessarily make it more likely to produce cash. So it should not be applied as a universal solution to unappetising concessions.

Moreover, the financing essentially prevents Cintra from releasing equity from the project until the senior lenders are paid out. As such it will not as it stands provide the sponsor with a steady stream of income. But it does provide it with a certainty that it will get a return.

So, the next level of financial engineering for Cintra will be to devise a structure that allows it to take out its equity. Since an outright sale is unlikely, the sponsor would likely be able to monetise in some way this mostly guaranteed revenue stream. It could even be a way to make Chile's pension funds, which have not traditionally been interested in equity positions, players in the Autopista del Maipo market.

Autopista del Maipo
Sociedad Concesionaria SA
Status: closed 14 October 2004
Size: UF 23.1 million ($565 million)
Location: Chile
Description: refinancing of a 266km toll road
Sponsor: Cintra
Debt: $175 million bond issue, $450 million shelf, $60 million standby facility (all Peso equivalent)
Bookrunner and facility provider: ABN Amro
Placement agent: BBVA
Monoline insurer: MBIA
Maturity: 19 years
Coupon: 4.69%
Sponsor legal: White & Case (international), Estudio Morales (local)
Lenders' legal: Debevoise & Plimpton (international), Claro y Cia (local)