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Mexico's Farac To Add New Impulse to ABS
Asset Securitization Report--SourceMedia (June 4, 2007)

Felipe Ossa

The Mexican government will soon start selling off operating concessions for highways that it rescued in the aftermath of the Tequila Crisis of 1994. The first batch of roads is slated to land on the auction block next month, and players are already mentioning ABS in the same breath as Farac, the Spanish abbreviation for the trust responsible for administering the toll roads.

"[In the realm of infrastructure], this year everyone is focused on Farac," said Luis de la Pena, business director of Mexican structured finance at BBVA Bancomer. "If the [first] bid takes place in July, we could see a securitization of the tolls as soon as January."

Farac was set up to save privately operated highways from financial disaster in the mid-1990s, when a sharp devaluation in the peso and subsequent economic slump delivered a double blow to operators. The slowdown ate into revenue, while the devaluation sent dollar debt soaring.

More than a decade later, Farac is ready to reprivatize the roughly 42 roads it manages, according to one Mexico City analyst.

The program will be kicked off with the sale of a 30-year concession for the Maravatio-Zapotlanejo highway, and Guadalajara-Aguascalientes-Leon highway. The winning bidder will also be obligated to build a road between Durango and Mazatlan, the analyst said.

De le Pena said the overall price tag on this single concession package could be around $1.2 billion.

Concessions sold through Farac stand a good chance of attracting monoline interest, particularly since guarantors have already wrapped toll-road deals in Mexico's domestic market. "We're interested because we do a lot of infrastructure worldwide," said Diana Adams, managing director of emerging markets at Ambac Assurance Corp. "Existing toll roads with a traffic history are an ideal asset class [for a monoline] like Ambac, [since] we don't want to take a lot of risk."

The future securitization of government payments through private public partnerships (PPPs) - an event anticipated for next year - will be less palatable to certain monolines, since the projects tend to be greenfield.

(c) 2007 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.



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