LatinFinance - July 2013 - 24

Structured finance

The big fix
By Katie Llanos-Small

24 LatinFinance

July 2013

CDOs took a hammering during the crisis, but a new plan to use
them in Colombia could help bridge a huge funding gap

ANI

C

DO became almost a dirty word at
the height of the financial crisis.
In the US, collateralized debt
obligations fell apart as the subprime
crisis swept in, leaving defaults, lawsuits
and foreclosures in its wake.
Yet today, plans are being advanced to
put such an instrument to work in Latin
America, this time to fund infrastructure
development.
The move is unprecedented. But
repairing Colombia’s decrepit highway
system is seen as a momentous task that
calls for an equally ambitious financing
framework.
The country’s plans to roll out more
than 8,000 kilometers of fresh tarseal are
set to cost around $26 billion. That makes
it Latin America’s largest ever highway
project.
It is a crucial program for the country
to bring down the cost of its exports. At
$2,500, bringing a container from Bogotá
to the coast costs around twice what it
should to be globally competitive. Poor
roads are holding the country back.
And while concessionaires are
lining up to do the work, funding the
construction is complicated.
Enter the CAF, which is hoping to
leverage a small investment to benefit a
much larger road building project. The
development bank plans to take an equity
stake in a collateralized debt vehicle,
selling senior tranches to institutional
investors.
“If it works right, we will be able to
support a larger number of projects than
through funding individual concessions,”
says Victor Traverso, CAF’s regional
director for Colombia.
It would also set a model for financing
other infrastructure projects throughout
Latin America.
“The multilaterals want to make sure

Distant target: Colombia’s Ruta del Sol
the structure is replicable,” says Felipe
Aristizábal, manager in Bancolombia’s
investment banking division. “The vehicle
will have some specific features, but on
the whole it will be applicable elsewhere
and in other industries.”
CAF is planning to invest as much
as $75 million in the fund. It hopes to
minimize its contribution, however, by
attracting mezzanine and other equity
investors, including other multilaterals. By
bringing in further senior investors – such
as Colombian institutional investors – CAF
hopes the fund could reach around $1
billion in size.
CAF’s in-house structurers – it is
not using investment banks – are still
hammering out the details of the fund.
But it is likely to comprise 70% senior

paper rated double or triple-A, and 30%
equity and mezzanine tranches.
The preliminary structure should
be ready for ratings agency scrutiny
by the end of August. From there, the
multilateral plans to look for other
subordinated investors and mandate an
asset manager to run the vehicle.

Spreading risk

CDOs – vehicles that buy a pool of assets,
funded by debt with varying ratings which
is sold to different investors according
to their risk appetite – have been used
sporadically to fund infrastructure
internationally.
Spanish and German banks used
the formula during the financial crisis
to generate triple-A rated paper from
LatinFinance - July 2013

Table of Contents for the Digital Edition of LatinFinance - July 2013
