Flash Fixed Income Report /

Paraguay's Rutas del Este zero coupon priced to yield 5.0%

    Rafael Elias
    Rafael Elias

    Director, Latin America Credit

    Tellimer Research
    9 October 2019
    Published by

    Paraguay's Rutas del Este (marketed as Rutas 2 y 7 Finance Limited, the company's Special Purpose Vehicle) launched and priced a new zero coupon bond today. The company, a highway concessionaire that is currently building the Ruta 2 and Ruta 7 highways, issued a US$457.615mn, senior secured (1st. Lien) zero coupon, sinking bond maturing on 30 September 2036, with a weighted average life of 9.7 years, the first mandatory sink (of 3.33% semi-annually until 31 March 2036) on 31 March 2022, and rated BB+ by Fitch.

    The bonds will securitise contractual payment rights that constitute direct, irrevocable and unconditional payment obligations of the Republic of Paraguay. These payments will vest upon completion of pre-determined milestones related to the completion of construction benchmarks. Construction is being conducted by Sacyr Concesiones and Ocho A. 

    In our report 'LatAm: New issues galore!', we compared these new bonds to:

    1. the Republic of Paraguay's US$1bn 6.10% senior unsecured bonds due 2044 (Ba1/BB/BB+), which trade at cUS$123.766 (ALLQ) to yield c4.50% (g-spread 257bps; z-spread 290bps) and have 14.166 years' duration and,
    2. the Republic's US$500mn 4.70% senior unsecured bonds due 2027 (Ba1/BB/BB+), which trade at cUS$109.988 (ALLQ) to yield c3.19% (g-spread 172bps; z-spread 180bps) and have 6.429 years' duration

    We believed the Rutas' zero coupon bond should be priced c150-200bps wide to the sovereign (assuming the 9.7 years' average life) to yield c5.25-5.50%. The bonds were priced today at US$63.345 to yield 5.0% (g-spread 349bps; z-spread 352bps) and work out duration of 8.786 years, following the recent tightening of the sovereign, and reflecting the comfort of investors with the security and its semi-quasi-sovereign characteristics given by the country's above-mentioned irrevocable and unconditional payment obligation (subject to the issuer's operating companies meeting the construction and delivery conditions of the highways).