Flash Fixed Income Report /
Jamaica

TransJamaican Highway: An exotic new issue

    Rafael Elias
    Rafael Elias

    Director, Latin America Credit

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    Tellimer Research
    7 February 2020
    Published byTellimer Research

    TransJamaican Highway Limited (TJH) has announced it is planning to come to the market with 16.75 year (10.7 years' average life) senior secured bonds, with expected ratings of B+/BB-. The bonds' size has not been announced but that we believe it could be cUS$500mn. TJH operates and maintains toll roads in Jamaica and is involved in the ‘Highway 2000’ road-building project.

    We regard the issue as unusual because of its unconventional maturity, its quasi-sovereign nature (rare for Jamaica) and the collateral package, which appears stronger than that of traditional infrastructure bonds.

    Initial pricing guidance is "in the low 6% area", which we believe is fair given the bonds will be secured by collateral consisting of most of TJH's assets, including:

    1. Rights under the project documents (including economic rights under the concession agreement);
    2. Bank accounts including the reserve accounts; 
    3. Property and leasehold rights; and 
    4. An agreement to assign the issuer's interest in the concession agreement.

    The proceeds will be used to repay TJH's aggregate outstanding debt in full, to fund the reserve accounts and to make a one-time dividend payment to the National Road Operating and Constructing Company Limited (NROCC), among other general corporate purposes.

    According to company documents:

    "The National Road Operating and Constructing Company Limited (NROCC), also known as the Grantor, is a public company formed to represent the Government of Jamaica’s interest under a Concession Agreement signed in 2001 for the establishment, development, financing, operation and maintenance of a tolled highway.

    NROCC entered into an arrangement with the Developer, Transjamaican Highway Limited (TJH) for the design, construction, operation and maintenance of the Highway 2000 toll road. The project was conceived as a public-private partnership and implemented as a build‑finance-operate and transfer (BFOT) 35-year concession scheme. NROCC also has the responsibility for monitoring the performance of the Developer to assure compliance with the requirements of the existing Concession Agreement and for monitoring new tolled roads which are added to the network. NROCC purchases properties affected by the Highway alignment on behalf of the Government of Jamaica and also provides partial funding to the project.

    In 2012 NROCC signed a second Concession for the implementation of Phase 2 of the Highway 2000 project from Caymanas to Ocho Rios under a 50-year BFOT concession with Jamaica North South Highway Company (JNSHC).

    It is envisioned that Phase 2 of the Highway 2000 project will link Kingston and Ocho Rios. 

    The Highway is the largest and most significant infrastructure project ever undertaken in Jamaica as well as the English speaking Caribbean. It features a four lane controlled-access, tolled motorway with fully grade separated interchanges and intersections built according to modern international standards. 

    The Highway 2000 project is divided into two main phases which are further sub-divided into sections as shown below:

    Phase 1

    Phase 1A (~46 km) – Kingston to Sandy Bay 

    Phase 1B (~ 10.5 Km) - Sandy Bay to May Pen

    Phase 1C (~ 27.5 Km) – May Pen to Williamsfield

    Phase 2

    Phase 2A (~67 km) - Caymanas to Ocho Rios (Includes Mt. Rosser Bypass)

    Phase 2B – Williamsfield to Montego Bay.

    Phase 1A of the Highway was completed in 2006 July. Phase 1B was completed in 2012 August. Section 2 (Mount Rosser Bypass) of Phase 2A was completed in August 2014.

    Construction of Phase 2A (Sections 1 and 3) was completed during the reporting period 2015/2016, and was opened in phases; with the entire Highway opened to the public on March 23, 2016."

    The new bonds, as stated in the collateral package, will hold reserve accounts consisting of:

    1. A debt service reserve account to fund six months of debt service; 
    2. An O&M (operating and maintenance) reserve account to fund three months of the budgeted O&M expenses; and 
    3. A major maintenance reserve account to fund three years of projected major maintenance expenses (100%, 50%, 25%). 

    The proceeds will be used to repay TJH's aggregate outstanding debt in full, to fund the reserve accounts and to make a one-time dividend payment to the National Road Operating and Constructing Company Limited (NROCC), among other general corporate purposes.

    In our view, given the strategic importance of this project to the Government of Jamaica, the secured nature of the bonds and their collateral package, and the pricing guidance, 6% would be fair and anything above that level would be attractive.

    Pricing is expected today.