OHL’s 64km Viaducto Elevado Bicentenario toll road concession brought together capital from a government-managed infra­structure fund and a domestic commercial bank, suggesting that there are ways for Mexico to cope with diminished interest from international banks in the country’s roads sector. Fona­din provided a Ps1.5 bil­lion ($124.8 million) loan to the Ps7 bil­lion Via­ducto phase one, which is sub­ordi­nate to Ps4 billion in commercial bank and Banobras debt. The commercial bank debt for the Mexico state-awarded road closed in early 2010, and federal toll con­cessions should benefit from the example, though none have yet matched OHL’s feat.

The structure allowed the sponsor to increase the average debt service cover­age ratio on the senior debt, to 2x from 1.3x, in order to whet commercial lend­er appetite for a Ps2 billion tranche. It was so successful that the sponsor and its structuring ad­viser, Vace Partners, were able to source the entire bank tranche from a single lender, Banco Inbursa, instead of using a club loan, as they had planned.

Inbursa’s Ps2 billion senior loan, which ranks pari passu with the Banobras tranche, closed in March 2010. It repaid a sponsor loan from OHL that closed along­side the government tranches before the end of 2009. Tenor is 15 years and the debt is priced over TIIE with steps up over the life of the loan. Both tenor and pricing were competitive with the government debt. Both senior tranches have a three-year grace period on interest payments after the end of construction, which is expected during the first quarter of 2011. The sponsor contri­buted Ps2 billion in equity, and Mijares Angoitia Cortes y Fuentes was legal counsel to the sponsor.

The Fonadin tranche increases senior lender comfort considerably. Of the tranche’s proceeds, Ps300 million is set aside to fund construction contingencies and, if needed, it can provide a buffer to senior debt by absorbing weaker-than-expected revenues during the toll road’s ramp-up period. If revenues are lower than expected after the road is complete, interest can be capitalised. However, if revenues meet or exceed targets, the sponsor can not only cover all debt service but also is obliged to pay a small percentage to the grantor under a revenue sharing agreement. The interest in the deal from commercial banks suggests that they were waiting for the government to take the lead in supporting infrastructure deals before putting their balance sheets to work.

The Ministry of Communications of the State of Mexico award­ed the 30-year design-build-finance-operate-maintain green­field concession to OHL in April 2008. The first phase of the project is a 22km elevated three-lane section from Toreo de Cuatro Caminos, on the Mexico City border, to Tepalcapa. This includes a 4.5km section of highway that is already operating. When average daily traffic on the first section reaches 55,000 vehicles, construction will begin on the second phase, a second 22km three-lane elevated structure running parallel to the first phase. A third phase, which includes two parallel 10km three-lane elevated stretches from Tepalcapa to Tepotzotlan, will break ground once average daily traffic reaches 180,000 vehicles. OHL, which owns the concession through OHL Concesiones Mexico, is construct­ing, operating and maintaining the road itself. SGS was technical adviser to the sponsor. The entire concession is valued at roughly Ps22 billion.

OHL was selected over ICA and Ideal, two large domestic sponsors, because of its lower toll rate schedule and phased construction with reversible lanes proposal. Once construction is complete, the operator will allow in­bound Mexico City traffic to use the road during the morning and then reverse the flow to serve outbound vehicles in the evening. The initial financ­ing package for phase one, including the equity, sponsor loan, and Banobras and Fonadin debt, closed in November 2009.

Vace launched the senior bank tranche beauty contest in Decem­ber 2009. The selection process favoured the bank that could most closely match the terms provided by Banobras and offer the quickest route to financial close. BBVA Bancomer, Banco Santander, Banorte, Inbursa, Mifel, Banco del Bajio, ING and La Caixa were invited to participate. Inbursa was selected in February 2010.

The final terms offered were better than either Vace or the spon­sor expected. Going into the contest, they expected that the commercial bank tranche would be either a five- to seven-year club loan or mini­perm. They were surprised when Inbursa offered to lend the full amount and for a tenor of 15 years, which matched that offer­ed by the government lenders. Financ­ing structures for the second and third phases have yet to be determined.

Market participants are confident that the flexibility demon­strated by Fonadin in the Viaducto deal could be repeated with other road projects in Mexico. They note that, while each deal is unique, for those with strong sponsors and reliable traffic studies there will still likely be more creative structuring from the government infra­structure fund needed to close deals. Some of the potential concessions mentioned that could benefit from this flexibility include the pending federal Farac Michoacan and Farac Noreste tenders, which are scheduled to be awarded in March and April 2011.

Viaducto Bicentenario, SA de CV
Status: Closed March 2010
Size: Ps7 billion ($582.6 million)
Location: State of Mexico, Mexico
Description: 64km elevated toll road from the Mexico City border to Tepotzotlan
Grantor: Ministry of Communications, State of Mexico
Sponsor: OHL
Equity: Ps2 billion
Debt: Ps2 billion senior commercial bank loan, Ps2 billion senior Banobras loan and Ps1.5 billion subordinate Fonadin loan
Lenders: Bancobras, Fonadin, Inbursa
Structuring agent: Vace Partners
Legal counsel: Mijares Angoitia Cortes y Fuentes (sponsor), in-house (lenders)
Technical adviser to the sponsor: SGS