Flash Fixed Income Report /

Mexico: Aeromexico takes flight with debut bond; expect robust order book

    Rafael Elias
    Rafael Elias

    Director, Latin America Credit

    Tellimer Research
    31 January 2020
    Published byTellimer Research

    Mexico's Aerovias de Mexico, S.A. de C.V. is expected to issue a debut senior unsecured bond today guaranteed by Grupo Aeromexico, S.A.B. de C.V., with a "benchmark-size" (which we believe could be between US$500mn up to US$1.0bn), and a 5-year maturity rated B2/BB-/Nr. Aeromexico is Mexico's largest airline in terms of fleet size, number of domestic and international routes and market share. It is also part of a code-share agreement with Delta Airlines.

    The bond's initial price guidance is "in the low-to-mid 7.0% area", which we believe is attractive when compared with Latam Airlines (LATAIR), its closest comparable in the region in our view, in terms of common parameters – LATAIR is to the Southern Cone what Aeromexico is for Mexico. The difference, however, is that LATAIR operates directly in more markets like Chile, Brazil and other LatAm countries where it is either the leading airline, or one of the leading airlines in any country where it has fixed operations. Aeromexico, on the other hand, is based and operates only out of Mexico. 

    LATAIR has a US$659.844mn (out of an originally issue amount of US$845.213mn), 4.20%, 1st Lien senior secured bond due 2027 outstanding (A3/BBB+/NR), and currently seen trading at cUS$104.062 (ALLQ) to yield c3.61% (g-spread 213bps; z-spread 193bps) and has a duration of 6.645 years. It also has a 2nd Lien, (rated Baa3/BB+/NR), US$107.447mn (out of an originally-issued amount of US$175.610mn), 4.50% bond due 2023 that is currently seen trading at cUS$100.982 (ALLQ) to yield c4.24% (g-spread 288bps; z-spread 268bps) and a duration of 3.466 years.

    Additionally, we look at comparable benchmarks with senior unsecured bonds of airlines in the region that, albeit not as big as LATAIR or Aeromexico, are also relevant in their markets of operation. Gol Linhas Aereas Inteligentes (GOLLBZ) has a US$650.0mn, 7.0% senior unsecured bond due 2025 (B/B+), currently seen trading at cUS$102.216 (ALLQ) to yield c6.36% (g-spread 500bps; z-spread 499bps). Azul Investments (the special purpose vehicle issuing on behalf of Azul Airlines) has a US$400.0mn, 5.875% senior unsecured bond due 2024 (B1/B+/BB-), currently seen trading at cUS$104.717 to yield c4.48% (g-spread 313bps; z-spread 311bps). 

    Looking at the comparables and the initial price guidance, we believe that Aeromexico's new bond will see strong demand, as has been the case with the handful of below-investment-grade bonds that have come to the market this year. We believe the bond is likely to price at 7.0% flat if not even a little lower (6.75%). Even at these levels, we would consider the new bond as attractive.

    Pricing is expected today and we anticipate a very robust order book.