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Washington D.C., April 7, 2003—
The International Finance Corporation, the private sector arm of the World Bank Group, has agreed to provide its first partial guarantee of a local bond issuance in Chile. IFC’s credit enhancement will facilitate the *UF 1 million (approximately US$22 million) bond issuance of Universidad Diego Portales (UDP), one of Chile’s leading private universities.
The transaction is expected to be the first future cash flow securitization in Chile and the first by a Latin American university. The partial guarantee offered by IFC is part of a broader strategy to help develop domestic capital markets and to expand the local currency financing options available to educational institutions.
IFC will provide a guarantee for up to 30% of the principal amount of the bonds outstanding (up to UF 300,000, approximately US$6.6 million, at issuance). With the IFC credit enhancement, the eight year bonds have received a AA- rating by the local affiliates of Moody’s, Standard & Poors and Fitch.
The bond was structured with Ernst & Young’s Corporate Finance Division using future tuition cash flows of some elected careers as an underlying asset. This product was developed mainly to attract Chilean institutional investors like pension Fund Administrators (AFPs), insurance companies, and others. The bonds will be issued on behalf of UDP by ABN Amro Securitizadora. UDP was represented by the law firm of Carey y Cia.
Nina Shapiro, IFC Vice President of Finance and Treasurer, said, “This instrument will provide an option for local institutional investors to diversify their holdings. We expect to do other such capital market transactions in Chile.” She added, “This type of innovative form of IFC financing is good for our clients and also helps to develop domestic capital markets.”
The University will use the proceeds of the bonds to finance an expansion and modernization project. The University’s aim is consolidate its market position and provide additional space needed to accommodate increased student enrollment in recently launched programs in medicine, engineering, and the humanities. UDP is working closely with the Municipality of Santiago to create a fully integrated urban campus with stronger links to the community and neighboring universities. The project includes the restoration and renovation of several historic buildings, which will help preserve the rich cultural heritage of the district.
"IFC has welcomed the opportunity to help Diego Portales raise long-term local currency financing for its diversification and expansion. This structured bond is the first capital markets transaction for a higher education project undertaken by IFC, and we hope to replicate its success in other parts of the world,” noted Guy Ellena, Director of IFC's Health and Education Department.
Since founded in 1982 and becoming independent in 1993, the Universidad Diego Portales has been a private law endowment for higher education, cultivating freedom of thought, opinion and education. The University is located in Chile's capital city Santiago, and its student body totals approximately 10,000 students from different cities throughout Chile and 27 countries around the globe.
IFC's mission (www.ifc.org) is to promote sustainable private sector investment in developing countries, helping to reduce poverty and improve people's lives. IFC finances private sector investments in the developing world, mobilizes capital in the international financial markets, helps clients improve social and environmental sustainability, and provides technical assistance and advice to governments and businesses.
IFC’s current portfolio in Chile is US1.2 billion Since its founding in 1956, IFC has committed more than $34 billion of its own funds and arranged $21 billion in syndications for 2,825 companies in 140 developing countries. IFC’s committed portfolio at the end of FY02 was $15.1 billion.
* UF is the inflation adjusted peso index
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