ICA toll road refinancing, Mexico

Last month Mexican construction firm Ingenieros Civiles Asociados (ICA) closed a Ps3.8 billion ($294 million) bond issuance principally to refinance existing debt on two of its operational highways. The transaction attested a new structure which combined revenues from toll charges and availability payments.

The bonds were issued by special purpose companies Libramiento ICA La Piedad (LIPSA) and ICA San Luís (ICASAL) owned by ICA, which hold the Libramiento La Piedad (bypass) and Río Verde-Ciudad Valles concessions respectively. The LIPSA concession is based solely on a toll road revenue structure, while the ICASAL concession has a hybrid structure involving toll revenue and availability payments from the Secretariat of Communication and Transport (SCT) for the operation and maintenance of the road.

Situated across the Guanajuato, Michoacán and Jalisco states, the 21.4km La Piedad bypass, came into operation in March 2013, when it registered an annual average daily traffic (AADT) of 4,524. Standard & Poor’s (S&P) estimates this flow will grow by 12% in 2014, 7% in 2015, 6% in 2016 and 4% between 2017 and 2036, when the issuance matures.

The 113km Río Verde-Ciudad Valles highway located in San Luís Potosí state came into operation in June 2013. Only the second section of the highway Rayón-La Pitahaya has toll booths, while the first and second sections Río Verde-Rayón and La Pitahaya-Ciudad Valles respectively rely on availability payments.

The transaction comprised two UDI-denominated tranches (Mexican inflation units). The first 389.44 million UDIs (Ps2b) tranche (A1) is backed by the SCT availability payments provided to the concessionaire for the operation and maintenance of the Río Verde-Ciudad Valles highway, under a service contract known locally as a PPS. The A1 bonds, which mature in February 2027, have an average life of 7.1 years

The second 350.49 UDIs (Ps1.8b) tranche (A2) will be repaid with cashflows generated by tolls charged by the La Piedad bypass, and on a section of the Río Verde highway. The A2 bonds have a maturity of just over 22 years and an average life of 13.4 years.

The main benefit of combining the different revenue streams, according to ICA, was the ability to mitigate risks as each project posed different location risks and revenue risks (government/traffic).  

On 22 July 2014 the A1 tranche priced at 5.40% and was rated MxAAA (local scale) by S&P and AAA by local agency HR, while the A2 tranche priced at 5.95% and was rated MxAA by S&P and AA by HR. The average debt service coverage ratio for series one and two were 1.32x and 1.53x respectively, according to S&P. The transaction closed two days later (24 July).

Morgan Stanley, Santander, BBVA and Deutsche Bank were bookrunners and Latam Capital Advisors was financial adviser to ICA in the transaction. All of the bonds were placed with a single bondholder, local commercial bank Banco Inbursa.

Rights of way delay

The acquisition process of land rights of way in Mexico is complex and has caused delay to energy and infrastructure projects countrywide. ICA decided to refinance debt on the highways after the Secretariat of Communication and Transport (SCT) extended the term of the LIPSA concession because the construction period, which was scheduled to last three years, ran over a year due to land right of way issues, which led to additional construction costs.

LIPSA won the 30-year design-build-finance-operate concession for the La Piedad bypass in 2009, but the concession will now terminate in 2054, after the SCT granted a 15-year extension. ICASAL’s service contract and concession both end in 2027, but ICA is in negotiations to extend the service agreement by four years (until 2031) and the concession by 20 years (until 2047). Though in this transaction ICA assumed the latter concession terms remained the same.

Both of the project’s original debt was closed with Santander and subsequently syndicated. In the 2009 LIPSA syndication, local commercial bank Banorte joined as an equal lender in the roughly Ps950 million debt-financing. For ICASAL in 2007, Santander syndicated 75% of the debt with state-owned development bank (Banobras), and kept the remainder.

Subordinate follow on

While most of the proceeds of the bond refinanced existing construction loans, a proportion repaid swaps and about Ps177 million repaid additional costs incurred during construction. The total cost overruns are estimated at Ps1.437 billion. In mid-September ICA will launch a single tranched-subordinate bond to fund the remainder of the costs.

The structure will resemble that used in the placement of subordinate bonds for the construction and operation of a 2,500-inmate facility on the outskirts of Hermosillo in Sonora state, and another prison in Jalisco, by project companies Sarre Infraestructura y Servicios and Papagos Servicios para la Infraestructura in April 2012. 


Greenberg Traurig provided legal counsel to ICA and Deloitte was financial statement adviser. Deutsche Bank was issuing trustee and Invex was operating trustee.

Asset SnapshotRio Verde-Ciudad Valle Road (112KM)

USD 298.50m
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Asset SnapshotLa Piedad Bypass Michoacan

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Transaction SnapshotLa Piedad and Río Verde Toll Roads Refinancing 2014

Financial Close:
$292.60m USD
Debt/Equity Ratio:
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