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NEW YORK, May 4 (IFR) - Supranational borrower Corporacion Andina de Fomento (CAF) was being joined by Panamanian state-owned airport Tocumen, and junk rated AES Dominicana in a somewhat fragile primary market for EM names on Wednesday.
This was Tocumen's second bond foray, but this time it came with a security governed by New York law - as opposed to the local law format used in its first issue which was placed mostly among domestic accounts in 2013.
Leads Citigroup squeezed pricing about 3/8 of a point before landing the US$625m 20-year bond with a 15.9-year average life at a yield of 5.375%.
That level, which is the equivalent of around 340bp over Treasuries, arguably looks tight to the existing 5.75% 2023s, which are being spotted at around 5.00%, or a G-spread of around 360bp.
The spread differential between local and international law bonds is typically anywhere between 90bp and 120bp, but such distinctions are difficult to define in Panama, said Sean Newman, a senior portfolio manager at Invesco.
"Either the new bond is very cheap or the old bond is very expensive," he said. "It is a tough assessment."
It was a different story however against the sovereign curve, where the existing 2028s have been trading at G spread of 180bp and made Tocumen's new deal attractive to some accounts.
That proved insufficient for some investors who thought the dominance of regional airline COPA required a bigger pick-up to compensate for such risks.
"COPA is responsible for the vast majority of traffic going in and out of the airport," said another US based investor. "It is a great airline but if they went under that would be a blow to Panama."
Tocumen's leverage is also high at 11.3 times, though Fitch expects the credit to deleverage to around nine times by 2020.
The deal's relatively large size, which qualifies it for index inclusion, as well as structural features like a debt incurrence test and a debt service reserve fund also heightened comfort levels.
This was underscored by the secondary performance as the bond jumped to 100.50-101.50 on the break.
"Given the airport's strategic importance as the country positions itself as a logistical hub for the region and the support of the government act as mitigants for the high leverage," said Newman.
Dominican subsidiaries of AES - AES Andres and Empresa Itabo - are looking to raise a combined US$370m through a 10-year non-call five under the name of AES Dominicana.
The deal launched at 8.25% tighter than guidance of 8.375% (+/-12.5bp), offering a 230bp pick-up over the Dominican Republic's 2026s.
That spread differential falls in line with Chilean AES subsidiary Gener, whose 2025s trade around 200bp over the Chilean sovereign, noted a syndicate banker away from the deal.
"There is no perfect comp for this," he said. "But I think it is a fair outcome."
Further up the credit spectrum, CAF, rated Aa3/AA-/AA-, was also returning to the dollar market with a US$1.25bn three year bond through Barclays, Citigroup and HSBC.
That deal was launched at mid-swaps plus 100bp, the tight end of guidance of 105bp area and inside IPTs of 115bp area. Books reached US$1.7bn earlier on Wednesday. (Reporting By Paul Kilby; editing by Shankar Ramakrishnan)