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Mexico City Airport Trust’s (Mexcat) dollar bonds due 2047 that are backed by passenger fees from its existing Benito Juarez International Airport, has risen by ~50% since September 2022. The bonds were issued in 2016-2017 to build a new airport; however, the project was canceled in 2018 by President AMLO. After tumbling during the pandemic, as air traffic has recovered, so have Mexcat’s bonds. The rise in international passenger air travel fees has seen these bonds see multifold returns. Also, AMLO said he wanted the navy to take over operation of the airport. T. Rowe Price’s Aaron Gifford notes that AMLOs comments has made investors hopeful that Mexico may buy back some of the overall $4.2bn of bonds tied to the project, or offer a full guarantee to replace the payments based on passenger fees. Thus, he believes the bonds could rally further. He believes that an early buyback of the bonds by the government will probably force them to pay more than face value due to the make whole premium include in the bond’s prospectus.
The Z-spread on Mexcat’s 2047s are comparable to the Mexican government’s dollar bonds, having tightened to its lowest since issuance. As seen on the BondbloX App, the Z-spread of Mexcat’s 5.5% 2047s are at 310bp while the comparable Mexico sovereign’s 4.35% 2047s‘ Z-spread is 300bp. Aayush Sonthalia, a portfolio manager at PGIM Fixed Income said, “We have found this bond quite attractive over the last few quarters. There’s a lot of cash being trapped in the structure and they will be required to use that to retire the principal”
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