In 2007 the investors Christian Murrie and David Stone shareholders of Pan American Capital Securities LLC created two companies, PPA SOFOM in Mexico and GFI in Colombia with the purpose of developing a collective financing mechanism for sub nationals¿ entities. In Mexico since 2007 PPA SOFOM carried out a marketing and promotional campaign to spread the concept of Collective Financing in various states and municipalities of the country.
As a consequence of this effort, during the first semester of 2008 PPA obtained letters of intent and Agreements of city Hall of various municipalities in the states of Michoacán, Chiapas, Hidalgo and Sinaloa, at the same time, PPA SOFOM negotiated with the State Legislatures the Authorizations of Indebtedness foe such states. However the international financial downturn, that restricted the liquidity in the stock markets in which Mexico was not the exception, interrupted the process and did impossible to culminate the transaction. By mid-2009 debt markets began to operate cautiously. By then, the resources that PPA SOFOM had were not sufficient to end the project, obliging the suspension of such project temporarily.
The objective of this KCP is to provide support for the recovery and implementation of the project PPA SOFOM; which as a vehicle of private financing to sub national entities, represents a key vehicle for the IDB to provide and contribute in its priority objective of develop infrastructure for the competitiveness and welfare of the Country. It is the IDB¿s intention to support this vehicle by granting partial credit guarantees to states and municipalities¿ debt issuances, once this vehicle has been settledThis KCP is aligned with the country strategy aimed to evaluate possibilities to support the development of sub nationals through the non-sovereign windows.
In addition, the IDB¿s support to PPA SOFOM has a high component of additionality, since its assistance would provide a two-folded help to the Mexican capital market by i) supporting middle to small sub nationals to be institutionalized and to have accesses to institutional investors and ii) by increasing the supply of high-quality instruments to institutional investors. Finally this KCP is completely aligned with the efforts of the program of the Mexican Government (GDM) of achieving more participation of private financing in this sector. The result of this project during the first year is to achieve approximately a US$100 million Bond issuance in debt markets to allocate such resources to nationals, with the intention to pave the road to subsequent issuances
