Mexico’s $12 Billion Deal to Aid Pemex Seen Spurring More P-Caps

Core Viewpoint - The use of pre-capitalized securities (P-Caps) by the Mexican government to manage debt obligations is emerging as a potential model for other struggling borrowers, particularly in Latin America and the Middle East [1][2]. Group 1: P-Cap Structure and Benefits - The Mexican government completed a $12 billion debt offering using P-Caps, marking the first sovereign use of this financing tool [2]. - P-Caps allow issuers to borrow without recording it as debt on their balance sheets, thus protecting their credit ratings [2][9]. - The structure enables refinancing for businesses facing tight credit conditions while keeping obligations off the issuer's books [9][10]. Group 2: Market Interest and Potential Candidates - Following Mexico's P-Cap offering, banks and issuers have shown increased interest in understanding and utilizing P-Caps [3][4]. - Peru is identified as a potential candidate for similar transactions, particularly for its state-owned oil company, Petroperu, which is experiencing liquidity issues [5][6][7]. - Discussions indicate that multiple transactions could occur before the end of the year, with a focus on larger deals to offset the additional costs associated with the P-Cap structure [4]. Group 3: Structure and Costs - In the Mexican P-Cap deal, proceeds were used to purchase U.S. government debt, which serves as collateral for loans to Pemex [8]. - The complexity and costs of setting up a special purpose vehicle for P-Caps may deter issuers looking to raise less than $500 million, as expenses can be significantly higher than traditional bond offerings [14]. - The P-Cap structure is particularly suitable for state-owned enterprises that cannot add liabilities to their balance sheets [13].