Liberty Latin America’s buildout of its digital network in Costa Rica doesn’t just mean improved digital connectivity for the country. The financing supporting the project has also created a new model for infrastructure transactions in the region.
Denver-headquartered Liberty, a leading telecoms firm operating in Central America and the Caribbean, entered Costa Rica in 2018 when it acquired 80% of domestic cable operator Cabletica. In 2021, it acquired Movistar from Spain’s Telefonica. The firm ended 2022 as the largest telecom operator in the country of 5.2 million people with a 42% market share.
The company’s $450-million financing, which closed in January 2023, set a number of precedents. It was the first private placement in Costa Rica’s history, the first sustainability-linked bond (SLB) for Liberty, and the first time IDB Invest, the private sector arm of the Inter-American Development Bank, issued an SLB B bond – designed to fund IDB Invest’s B loan and issued in Rule 144A/Reg S format – in international debt capital markets.
The $400 million B bond was the largest such issuance to date and complemented IDB Invest’s $50 million A loan funded through its balance sheet.
“We went to the market at an incredibly tough time. Other companies have done SLB placements, others have done A/B structure, but not in this format, not in this market and not with a sovereign rating constraint,” Matt Read, Liberty’s treasurer, says of the deal, which wins the award for Infrastructure Financing of the Year for Central America. “Couple all this together, and it is a compelling, unique package,”
Liberty had been planning to come to market a year earlier, but then Russia invaded Ukraine and the market essentially shut down. Ian Johnston, the firm’s VP and head of corporate finance, says Liberty used the intervening year to work with IDB Invest to lock down a financial structure that worked all parties, including investors unfamiliar with Costa Rican credit.
By opting for an innovative, first-of-its-kind issuance, a larger number of institutional investors were brought into the deal than would otherwise have participated in a traditional A/B Loan and B-Bond private placement structures.
“We are a seasoned Reg S 114A issuer and IDB Invest has its standard way, so we had to find some to a middle ground that worked for the two of us. The key novelty from a market perspective was taking the IDB Invest loan structure and having bonds issued in Reg S 114A structure and opening up this investment opportunity,” Johnston says.
The company intends to use the proceeds to finance investments in fiber-to-the-home, increase capabilities and speeds of the HFC network, capital expenditures related to 4G/5G infrastructure, refinance certain financial obligations, working capital, and general corporate purposes.
Liberty also intends to expand the country’s fiber-optic and mobile data infrastructure, with the goal of helping bridge the digital divide in a country still largely underserved by digital infrastructure. To this end, the financing also helped Liberty solidify its environmental, social and governance (ESG) strategy: from a social perspective, the digital build-out will improve connectivity – and opportunities -- for rural and urban communities.
Liberty Latin America published its first ESG report in 2022 and with the bond, Liberty Costa Rica committed to a 30% reduction in absolute emissions. “The bond was an important step for us in the ESG path. Our second ESG report will be out this year and signing up for specific emissions targets is in accordance with our plan,” Johnston says.
Sponsor: Liberty Latin America
Banks: Bank of America, Citi, IDB Invest, Scotiabank
Law Firms: Allen & Overy, Appleby, Baker McKenzie, BLP, Consortium Legal, Maples Group, Ropes & Gray
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