Fixed Income Analysis /

Mexico City Airport Trust: Better offer, but we reiterate Hold on valuation and remaining doubts

    Rafael Elias
    Rafael Elias

    Director, Latin America Credit

    Tellimer Research
    13 December 2018
    Published by

    Mexico’s Ministry of Finance issued a statement late on 11 December significantly improving its previous offer to tender up to US$1.8bn of Mexico City Airport Trust (MEXCAT) bonds. An ad hoc group of bondholders believed to hold more than 50% of the total US$6.0bn of bonds rejected the initial proposal last week.

    We reiterate our Hold recommendation for three main reasons:

    • The bond prices have risen to levels where we see little further upside; 
    • We believe there are still a few details to be resolved between the parties, particularly regarding what will happen to the remining US$4.2bn, assuming the holders of the US$1.8bn tender in their totality; and
    • We believe that, if the condition that the ad hoc group is reportedly seeking is met (whereby the government guarantees the balance of US$4bn, effectively making the outstanding bonds quasi-sovereign risk, backed by the full faith and credit of Mexico), the fact that the government has not tendered for the full US$6bn suggests it does not have the resources or liquidity to tender to do so and leave this matter behind. This means that the timely and full payment of the remaining US$4bn would still be contingent on the government meeting certain conditions spelled out in the new proposal.

    In sum, we believe the current (higher) prices for the MEXCAT family of bonds adequately reflect these concerns.

    We also believe that, if the government gives in and makes MEXCAT bonds an effective and explicit sovereign risk, the bonds could (and should) go to par. However, we still need to see if the government will be willing to take that last step and provide comfort to the holders of the remaining US$4.2bn.