Continuing the trend of top Brazilian corporates raising short term debt in the local market, Ultrapar, the Brazilian utility company, will seek to place BRL1.2bn in 360-day promissory notes, the local equivalent to commercial paper. With local debt markets virtually shut to new long dated deals, the country’s top names have resorted to funding themselves in the CP market. Cosan and Oi/Brasil Telecom have also recently landed chunky promissory notes. The latter managed to get its lenders to agree to the same terms for a second 360-day period, effectively raising 2-year money. Bradesco’s BBI is placing the Ultrapar deal and has apparently provided an firm guarantee on the notes, says one local debt banker.
Yearly Archives: 2008
Posted inDaily Brief
Bimbo Cooks up Jumbo Peso Financing
Mexican bread and confectionary maker Grupo Bimbo has secured some $2.3bn in loans from a group of 6 banks to pay for its acquisition of Weston’s US bread assets. The company is understood to be seeking to raise some two thirds of the longer-dated portions of the financing in pesos, and has accordingly tapped a lending group that has peso-lending capabilities, say people familiar with the process. The deal has multiple tranches, including a $600m 1-year bridge loan heard starting at around Libor plus 175bp. In the longer-dated tranches, Bimbo is looking at raising $900m worth of 3-year funds at Libor or TIIE plus 250bp, and $800m worth of 5-year funds at Libor or TIIE plus 300bp. Bank of America, BBVA Bancomer, Banamex Citi, ING, HSBC and Santander have agreed to equal size tickets on the deal, and will look to syndicate the loan in early 2009, says an executive involved in the process. Syndicating a large peso-denominated loan may prove to be a challenge not only because of tight liquidity conditions, but because the last large syndication in this market, a MXP37bn project loan for Farac, left some lenders holding larger than expected tickets for longer than expected time periods. The deal strained the limits local currency lending and soured relations between some participants, the deal’s leads and the borrower. Still, scoring a sizable financing package, part of which is to be denominated in pesos, is a notable feat for Bimbo in such a stringent environment. It shows that large M&A deals with a compelling story and strong banking relationships are still feasible in today’s tough market.
Posted inDaily Brief
Linklaters Welcomes LatAm Partners
Legal firm Linklaters has announced the addition of another LatAm-focused partner to its New York office. New hire Ray Fisher will concentrate on LatAm capital markets. Fisher has represented TV Globo, Pemex, Rede Brasil Sul, Petrobras, Buenaventura, Kimberly-Clark de Mexico, Embotelladora Andina, SQM and others. Linklaters has also recently appointed Alberto Luzarraga as a partner in its corporate/M&A practice in New York. Prior to the appointment, Luzarraga was a partner at Shearman & Sterling, where he had been since 1986.
Posted inDaily Brief
Sun Adds to LatAm Team
Sun Microsystems has added 3 executives to its LatAm team. Mauricio Martos is now the manager of service partnerships, Mauricio Leal will manage the Sun Developer Network programs and Bruno Souza is the new global director of OpenSource Communities.
Posted inDaily Brief
Moody’s Chops Enap’s Rating
Moody’s has announced that it has cut the foreign currency rating of Chile’s Empresa Nacional del Petroleo to A3 from A2, citing the company’s weakened profitability levels and high leverage compared to its peers. Enap’s debt-to-Ebitda increased to more than 15x over the 12 months to September 20, Moody’s says. The outlook is stable as Moody’s expects the company’s financial performance to improve over the near to medium term as a result of its investment initiatives, the expectation of reduced diesel demand from recent record levels and reduced working capital needs.
Posted inDaily Brief
Posadas Slides Further Down Rating Scale
Moody’s has downgraded Grupo Posadas’ senior unsecured debt and corporate family ratings to B1 (negative) from Ba3 to reflect tight liquidity caused by recent margin calls on derivative contracts. The agency also anticipates deterioration in credit metrics because of the need to externally fund cash collateral requirements of derivatives and re-establish short-term financial flexibility. “The downgrade also incorporates the view that the continued deterioration of economic conditions may challenge near-term cash flow generation and create additional pressure on credit metrics,” says Moody’s VP Sebastian Hofmeister. Margin calls on derivatives were triggered by sharp depreciation in MXP in October and November. They relate to cross currency swaps that convert the principal of peso denominated debt-instruments (primarily certificados bursatiles or local notes) into USD. The agency estimates that current unrestricted cash reserves of around MXP900m only cover about 80% of the company’s estimated 2009 debt maturities, creating refinancing risk should free cashflow remain insufficient. In addition, the company has not closed its major derivative positions, which expose it to potential further margin calls should the peso continue to depreciate, adds Moody’s. “Posadas has relatively ample room under financial covenants contained in its major debt agreements, theoretically enabling the company to raise additional funds if needed, although in practice this may be challenging under current credit market conditions,” it adds.
Posted inDaily Brief
Brazilian Ports Face Challenges
An 8% drop in full container volumes in Brazil is expected in 2009, says UBS Pactual. Weakening demand coupled with overcapacity has caused shipping rates to drop, says the shop, which thinks the situation could last a while. “We now assume a container volume decline of 5% for Brazil in 2009 (measured in TEUs), from 9% growth previously. However, we assume full container volumes decline further, by roughly 8%, reflecting deteriorating full-to-empty ratios,” says the shop. The scenario has deteriorated rather quickly, especially considering that in September, Brazilian ports were trying to keep up with increasing exports. In response to expectations for 2009, UBS has cut the 12-month price targets for Log-In (to BRL9 per share from BRL17), Wilson Sons (to BRL15 per BDR from BRL25) and Santos Brasil (to BRL9 from BRL31).
Posted inDaily Brief
Peru to Increase Public Spending
Peru’s president Alan Garcia has announced a plan to increase government spending by PES10bn. In addition, $3bn has been financed from international finance institutions and an additional $7bn of financing is being discussed. The funds would be invested in infrastructure, housing and credit lines for small and medium sized exporters. This extra injection, says JPMorgan, “suggests…a 1.6% of GDP fiscal deficit for 2009 –a still manageable figure.” Goldman Sachs says the implementation of the package “could turn the fiscal balance into deficit in 2009, from a projected surplus of 2.3% GDP in 2008.
Posted inDaily Brief
Office Depot Mexico to Invest $50m in Colombia
Office Depot Mexico (ODM), a joint venture between Grupo Gigante and Office Depot, will invest about $50m over a 5-year period to enter and expand in Colombia, Sergio Montero, a spokesman for Gigante, tells LatinFinance. Montero says that expansions will be financed using cash on hand and that while it is preferable for ODM to grow organically in Colombia, potential acquisitions might be considered. He also says that no financial advisor is on board at the moment. The company plans to open its first store in Colombia in late 2009, Montero adds. ODM also plans to next year open 10-20 stores in Mexico and possibly CentAm, versus almost 30 stores opened in the region so far this year.
Posted inDaily Brief
Textile Maker Unweaves Costly Derivative
Vicunha Textil, a Bovespa-listed textiles maker, says it will have to provision for a negative derivatives position in the amount of BRL32.6m. The FX derivative contract was signed with Citi’s Brazil-based bank and the company originally said it believed the loss to be around BRL28m, based on numbers through September 30.