Background

Agua de Hermosillo provides water and wastewater services to more than 936,000 residents within its service area. The pandemic caused the Utility to incur unexpected expenses, as well as lose revenue as a result of the discounts provided to its customers. In April 2020, Agua de Hermosillo provided discounts totaling $31 million pesos for more than 123,000 families and 13,000 businesses located within the municipality. That same month water service suspensions and surcharges on past-due accounts were prohibited. These actions limited the funds available for capital investments and the utility’s ability to respond in a timely manner to issues in its water and wastewater systems.

To help with the financial constraints caused by the pandemic, Agua de Hermosillo  implemented various cost reduction measures to minimize service rate increases in 2022. One of the cost-saving measures proposed by the Utility was to reduce its debt service obligations by refinancing its existing debt.

Description

In accordance with the provisions of the Mexican Financial Discipline Law for States and Municipalities, on April 21, 2022, the utility published a request for proposals to refinance a total of $290.28 million pesos in existing debt. NADBank, through its Mexican subsidiary COFIDAN, participated in the competitive process and won the bid. 

The project is being financed through the Umbrella Program for Refinancing of Existing Public Debt (“Refinancing Umbrella”), which was certified by the Board on November 12, 2020, under the NADB COVID-19 Recovery Program (ProRec).

Benefits

The project will reduce debt service requirements and thus increase available cash flows for maintenance and operation of existing infrastructure, lessen the need to raise fees in the future and help the Utility to continue providing water and wastewater services for the benefit of its residents. By refinancing the existing debt at a lower interest rate and extending the maturity from seven to fifteen years, Agua de Hermosillo expects to reduce debt service obligations by approximately $19.0 million pesos (US$928,000) during the first year of amortization. For comparison purposes, this amount represented approximately 10.6% of the Utility’s electricity costs in 2021.