Project Name: Tlalnepantla Municipal Water Conservation Project (TMWC)
Country: Mexico
Highlights:
Mexican Pesos 96 million (US$9.2 million equivalent ) 10-year bond issued by a private Mexican Trust.
The Trust was established to raise funds and on-lend to the Tlalnepantla Municipal Water Company (OPDM) and the Tlalnepantla Municipality as joint obligors to fund a water conservation project of US$8.8 million equivalent.
IFC provided a partial credit guarantee in Mexican Pesos together with Dexia Crédit Local .
The bond achieved a local scale rating of AAA.mx, three notches above the Municipality’s stand-alone rating at issue, and was sold to eight local institutions.
About the Municipality:
Tlalnepantla, with 800,000 habitants, is the most industrialized municipality in Mexico State. OPDM, the municipal water entity, is responsible for the provision of water, sewage and sanitation services within the Municipality.
Financing objective:
The Municipality’s financing objectives were twofold: (i) extend the maturity of the debt to better match the long-term nature of the investments, and (ii) diversify the funding sources for long-term infrastructure projects.
The structure of the project :
The bond, backed by OPDM’s water revenues, matures in 2013. IFC together with Dexia Credit local provided a partial credit guarantee (PCG) of 89% of the principal outstanding, that could be used to pay bondholders if there were insufficient funds in the Trust.
The outcome :
The PCG from IFC and Dexia allowed the bond issue to achieve a local rating of AAA.mx which was required by long-term institutional investors in Mexico. This was the first municipal bond issue in Mexico to finance essential infrastructure investments that will be serviced from OPDM’s own revenues and not using directly federal transfers. The project was completed successfully in 2006, with technical assistance provided by IFC's FMTAAS. The bond was subsequently refinanced to take advantage of declining spreads in Mexico.
