The Opposition is raising concerns about the Government’s plan to raise US$385 million (J$61 billion) utilizing future income from the Sangster International Airport to guarantee a bond issued by Montego Bay Airport Revenue Finance Limited (MoAir).
MoAir is a special-purpose vehicle established for the securitisation deal.
According to Fitch Ratings, proceeds from the MoAir deal will be utilized in part for general budreceiveary support and water infrastructure, declared a statement from Julian Robinson, the opposition spokesman on Finance.
The securitisation transaction mirrors a similar shift last year involving revenues from the Norman Manley International Airport. The Government raised US$480 million ($75 billion) under a 12-year secured bond.
Securitisation is the packaging and sale of a future income stream from an asset for a lump-sum value today, Prime Minister Dr Andrew Holness noted in his budreceive debate presentation in March, where he deffinished its utilize.
While acknowledging that securitisation can be a legitimate fiscal tool, Robinson insisted it cannot replace “a clear, long-term strategy to grow the economy,” warning that Jamaica risks becoming “increasingly depfinishent on short-term financing.
Robinson declares the latest effort is “a worrying pattern where the Government is relying on securitisation as a substitute for real revenue growth.” “There is a difference between raising capital for long-term infrastructure projects and pledging away future government revenues to meet today’s expenses,” he declared.
He added, “Securitisation is not inherently bad. But when it is being utilized to fund recurrent expfinishiture in the absence of strong economic growth, it becomes problematic. It’s like receiving your salary ten years in advance just to cover your current bills, with no plan to sustain yourself in the years ahead.”
Pointing to the Government’s own projections, Robinson argued the administration lacks a coherent growth strategy.
“In my budreceive presentation in March, I highlighted the Government’s projections for the medium term: 2.2% growth in 2025/26, then just 1% annually through to 2028/29. These are the administration’s own numbers. They inform us everything we required to know.”
Robinson is demanding full disclosure from Finance Minister Fayval Williams. “The Government must be clear with the Jamaican people. How much of the US$385 million will actually go toward water infrastructure, and how much will be allocated for general budreceiveary support? The public deserves to know.”
He added: “We urge the Finance Minister to disclose whether other critical government revenue streams are being pledged away, and what long-term fiscal implications these deals will have for future administrations and the countest as a whole.”
The Opposition further flagged the Government’s classification of the deal as a “true sale,” arguing that a “Top Up” agreement could expose taxpayers to contingent liabilities.
“The Public Debt Management Act is designed to ensure that contingent GOJ obligations have to be disclosed to and approved by the Houtilize of Representatives. However, these securitisation financing transactions are being treated as outside the scope of the Act,” Robinson asserted.
He declared this means “no disclosure of the risks and liabilities is being provided to the elected representatives of the people in Parliament, and no parliamentary approval process to authorize the GOJ assuming the ‘Top Up’ obligations.”
Fitch, a global credit ratings agency, has assigned a ‘BB+(EXP)’ expected rating to the bond. It declared the rating outview is stable.
It noted that the transaction proceeds will be utilized for “funding access to clean water, supporting tiny and medium-size enterprises, general budreceiveary purposes of the GoJ, funding the DSRA (debt service reserve account, the Accrual Account and the Revenue Account; transaction fees and expenses, and paying the purchase price under the true sale of revenue right.
In March Holness argued the previous People’s National Party administration “failed miserably” at a securitisation involving the NMIA.
“The key question then is what do we do with this lump sum of money – do we utilize it to party? No! We have utilized it to pay down debt, in other words relieving ourselves of current and future expense obligations,” he declared. “We have utilized it to create new infrastructure assets like the extension of Highway 2000 from May Pen to Williamsfield which will enable us to generate more revenues in the future. There is absolutely nothing wrong with this, it is a transparent transaction where there is no risk to the Government. Indeed it is a credit to Jamaica that the international capital markets view favourably at Jamaican securities.”
WHAT FITCH SAID
The rating reflects the revenue risk related to Sangster International Airport (SIA or Montego Bay Airport) in Jamaica, the main airport and gateway for tourism in the countest. It serves one of the most important leisure destinations in the Caribbean. The airport is a strategic asset for the countest given the importance of the tourism industest to the countest’s economy.
Despite competition from other Caribbean destinations, traffic at MoAir is resilient with low volatility. Almost all traffic is from international passengers, mainly from North America, but with adequate diversification in terms of carriers and origins. A hybrid-till regulatory regime governs maximum aeronautical tariffs, subject to reviews every five years incorporating inflation indexation among other factors.
The issuer is a special-purpose vehicle (SPV) entitled to receive concession fees directly from the concessionaire into offshore accounts. Therefore, the transaction structure isolates the airport’s cost and operating risks.
The debt will be senior, U.S. dollar-denominated, with a repaired interest rate and a bullet maturity in 2035. The debt will benefit from a six-month offshore debt service reserve account (DSRA), adequate covenant package, including limitations on additional indebtedness and restricted payments. It will also benefit from a top-up payment mechanism from the Government of Jamaica (GoJ, Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at ‘BB-‘ with a Positive Outview).
The refinancing risk is considered manageable and mitigated by the perpetual ownership and the strategic and essential nature of the asset for the countest. Besides, Fitch considers the sponsor’s adequate market access as positive, as notes refinancing will rely on international capital markets due to the limited size of Jamaica’s domestic credit market.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
— Deterioration in Jamaica’s sovereign credit profile, particularly the risk of imposition of capital controls;
— Traffic growth or overall financial performance consistently below Fitch’s rating case assumptions, which could lead to a sustained leverage above 7x.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
— Traffic growth or overall financial performance consistently above Fitch’s base case assumptions, which could lead to a sustained leverage around 6x, while continuing to deleverage;
— Strengthening of the credit profile of Jamaica, particularly the risk of imposition of capital controls, as long as MoAir presents metrics commensurate with a higher rating.
TRANSACTION SUMMARY
The transaction aims to raise up to USD385 million by issuing senior secured 144A/Reg S notes via the newly created SPV called Montego Bay Airport Revenue Finance Ltd., registered in the Cayman Islands. The debt will have a legal bullet maturity in June 2035, and mandatory bi-annual coupon payments.
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