The Government of Jamaica (GOJ) will be looking to raise up to US$440 million ($69.20 billion) in the international capital markets as it seeks to sell the future receivables that the Airports Authority of Jamaica (AAJ) collects from Norman Manley International Airport (NMIA).

This was revealed on Tuesday as S&P Global Ratings gave Kingston Airport Revenue Finance LLC (King Air) an initial/preliminary credit rating of BB with a stable outlook, a notch above Jamaica’s own sovereign credit rating of BB–.

King Air will be the special purpose vehicle (SPV) that will be assigned the rights to collect the monthly concession fee from NMIA. The senior secured notes would have a tenure up to 2036 with the final size of the offer to be determined shortly based on the final coupon.

“At the direction of the Government, the AAJ plans to transfer its revenue share from the concession to a bankruptcy-remote non-recourse special purpose vehicle, King Air. The latter will raise [US]$440 million in senior secured 144A/Reg S notes. The noteholders will have a pledge of the shares of King Air, the right to receive its revenue share, and an offshore cash funded DSRA [debt service reserve account],” stated the S&P Global Ratings document.

Securitising or selling receivables usually involves transferring the rights attached to receive a stream of income from a particular source into an SPV whose sole purpose is to direct the proceeds back to the investors. Securitisation of receivables allows the original entity or person with the economic right to receive that stream of cash flow to access capital/cash today for their desired plans or projects.

National Commercial Bank Jamaica Limited (NCBJ), the island’s largest commercial bank, has securitised different economic rights in prior transactions on international capital markets.

An example is in September 2020 when it raised US$250 million through the securitisation of its diversified payment rights (DPR). NBCJ transferred its DPR to an SPV called Jamaica Diversified Payment Rights Company Limited to enable the transaction.

A DPR is a right to receive payments from correspondent banks based overseas whenever a payment order is initiated by a person or entity situated overseas in favour of a person or entity situated in Jamaica.

This AAJ receivables transaction also represents the first known instance that the Jamaican Government has done this kind of securitisation on the international markets and comes almost a year after the country issued a $46.6-billion Jamaican dollar-linked international bond which is equivalent to US$300 million.

The use of proceeds wasn’t mentioned in the document, but the funds would be available for GOJ to use in any of its desired projects.

When the Jamaica Observer contacted AAJ president and Chief Executive Officer Audley Deidrick, he directed us to the Ministry of Finance and the Public Service, which is the entity directing this initiative. While Finance Minister Dr Nigel Clarke couldn’t provide additional details due to it being an ongoing offer, he did note that more details would be announced shortly and that this isn’t GOJ debt being taken on.

Dr Clarke had announced in his March 2024 budget speech that the Government would be raising approximately $45 billion by securitising its receivables. Approximately $25.12 billion would be allocated to cover the foregone taxes or revenue that GOJ wouldn’t receive from some of its new tax measures. The biggest expenditure items from those measures included the increase in the income tax threshold, which was set to cost $8.95 billion and the reverse tax credit which would cost GOJ $11.4 billion. The remaining $20 billion from the sale would be used to cover part of GOJ’s capital expenditure budget. One of those initiatives is the $40-billion Shared Prosperity Through Accelerated Improvement to our Road Network (SPARK) which is meant to improve the country’s road infrastructure over the next two years.

AAJ is a public body under the Ministry of Science, Energy, Telecommunications and Transport with the responsibility of managing and operating Jamaica’s international airports and domestic aerodromes. It owns NMIA and Sangster International Airport (SIA), but the operations of both airports are managed by Grupo Aeroportuario del Pacífico, SAB de CV (Pacific Airport Group) under separate concession agreements. AAJ collects a monthly concession fee from GAP’s management of both airports which totalled $8.20 billion for the 2022/2023 fiscal year, with an estimated $9.28 billion collected for the 2023/2024 fiscal year.

AAJ collected US$41.3 million (MX$733.60 million) or $6.34 billion in concession fees during 2023 from PAC Kingston Airport Limited (PACKAL), a GAP subsidiary, when the concession operator earned MX$1.19 billion in revenue and handled 1.7 million terminal passengers. AAJ was also paid US$34.7 million (MX$697.5 million) during 2022 when Packal earned MX$1.14 billion in total revenue. PACKAL has the right to continue operating NMIA up to October 2044 with a possible five-year extension.

AAJ’s monthly concession fee with the Pacific Airport Group for NMIA was adjusted in July from 62.01 per cent of gross revenues to 53.22 per cent with an effective date of September 11, 2023. The excess amounts paid since then to AAJ will be reimbursed to PACKAL once the 300-metre extension of the runway safety zone begins. The runway extension is set to cost US$66 million ($10.2 billion) and is scheduled for completion by the end of 2027.

AAJ as a State entity has projected $4.73 billion in capital expenditure for the 2024/2025 fiscal year with $720 million related to development work at NMIA. Additionally, $520 million will be deployed towards the shoreline protection project, with $820 million to be spent on domestic aerodromes, including Vernamfield.

With this being such a major transaction, there are additional measures put in for King Air should there be certain deviations. King Air’s only revenue source will be the 53.22 per cent monthly concession that will be paid by PACKAL, but this income source is not affected by any of the associated operational and maintenance expenses of NMIA.

Should there be a reduction in the revenue share or lower percentage revenue for any reason, the Government would top-up the payments to King Air. If competition were to arise and impact the project’s debt coverage service ratio (DCSR) below 1.3 times, the Government would make payments to King Air to maintain that DCSR figure above that level.

The rational advanced by S&P Global for giving King Air a credit rating above Jamaica was due to the project’s account being offshore and the airport revenue being denominated in United States dollars, which mitigates foreign exchange risk.

“The stable outlook on the notes reflects that on Jamaica. In addition, it’s based on our expectation of a gradual increase in passenger volumes at the NMIA, given its importance for Kingston, enabling the project to post debt service coverage ratios above 1.25x in the upcoming 12-24 months,” stated the S&P Global document.

The rating agency also gave some positives to the transaction such as NMIA’s long track record of operations and limited risk that any interruption to the airport wouldn’t be prolonged. The only risks highlighted were the potential decline in passenger flows through NMIA and the refinancing risk since S&P Global expects 75 per cent of the amortising notes to be refinanced at maturity.