Mexico Airport Bondholder Group Rejects Proposal to Change Terms

(Bloomberg) -- Mexican officials may need to come up with a new proposal to placate bondholders who invested in an airport project that the government now wants to cancel.

A group of creditors rejected an offer from the government to buy back some of the notes that is contingent on investors agreeing to a rewrite of the underlying covenants, a change that would strip them of some of their rights. The group says it owns at least half of one of the series of bonds, meaning its members have the power to scuttle any deal.

The development is a setback for President Andres Manuel Lopez Obrador, who took office this month after campaigning on a pledge to scrap the $13 billion Mexico City airport, which he called wasteful and corrupt. The government, sensitive to criticism that the leftist president was bound to trample investor rights and upend the economy, must figure out a plan for bondholders who loaned $6 billion for construction that’s already begun.

The offer comes in two parts. First, the government proposed buying back $1.8 billion of the bonds for 90 cents to 100 cents on the dollar, with an additional 5 cents for investors who agree to tender their notes early. The buyback is contingent on the second part, which is where the problem lies. It requires holders of a majority of each series of notes to consent to rule changes that allow the project to be canceled and to change the revenue stream for the bonds to the existing Mexico City airport. That doesn’t sit well with the ad hoc creditor group.

“Holders of MEXCAT debt are eager to begin discussions with the government," said David Knutson, an analyst at Schroder Investment Management, which is among the largest holders of the airport bonds, according to data compiled by Bloomberg. “We’re very hopeful to find common ground and find a transaction or modification that works for everyone.”

Knutson declined to say whether Schroder is a member of the bondholder group, which has hired British law firm Hogan Lovells and is said to be looking for a legal adviser.

The committee isn’t the first to recommend against the deal. CreditSights analyst Roger King has said that bondholders shouldn’t accept the terms of the government’s agreement because they would lose negotiating power.

Lopez Obrador said Wednesday that his government was honoring commitments on airport bonds and that his administration will fulfill its promises to investors.

©2018 Bloomberg L.P.

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