Yearly Archives: 2008

Morgan Stanley has chopped its forecast for growth across LatAm, which could see its most severe downturn since 1983 next year. The shop says the region’s GDP will contract by 0.4% in 2009. “With our global economics team cutting its forecast for 2009 global GDP almost in half today (from 1.7% to 0.9%), we had little choice but to slash our already weak LatAm numbers,” says the shop’s economics team. In October, Morgan Stanley forecast 1.5% growth for LatAm, already a revision down from an initial 3.5%. It believes Mexico’s GDP will contract by 1.5%, while it previously predicted zero growth. Argentina is meanwhile expected to contract by 2.2% while it was previously thought to be able to grow by 1.6%. Venezuela’s growth forecast has been cut to 1.0% from 2.0%. Brazil, previously thought to grow by 2.0%, will see no expansion in 2009, says Morgan Stanley. Colombia and Chile are expected to grow by 1.5% each. Previous forecasts had them expanding 2.0% and 1.9%, respectively. Peru, with its forecast unchanged at 4.0%, will remain the country with the most growth in 2009 even despite lower expectations. Morgan Stanley worries that even though LatAm is starting from a much improved state, it could suffer-along with many other emerging economies from much more limited space to engage in counter-cyclical policy.

Cap Cana, which late Monday said it came to agreement with lenders of a $100m bridge loan that came due November 19, has given the 6 holders of the facility a 40 cent haircut and assumed the remainder of the debt through a special purpose entity, say people close to the lending group. The 6 investors, which include five hedge funds and one larger institutional buysider, are understood to have received 60 cents on the dollar in cash to sell their holdings in the bridge loan to a Panama-based entity, says an investor familiar with the process. The executive says he believes the entity is ultimately owned by Cap Cana’s controlling shareholder family. “They’re moving assets from the right pocket to the left pocket. It’s all smoke in the mirrors,” says one buysider who seems unhappy about the company’s treatment of creditors. On Monday night, Cap Cana said the bridge loan agreement involved posting certain real estate assets as a payment in kind to the group of new lenders. That suggests new holders of the debt – which presumably includes the Panama-based entity – now control resort properties in addition to holding Cap Cana debt. Having redeemed the bridge, Cap Cana also released properties that were held under the loan agreement. Capa Cana’s IR official did not answer requests for comment. Morgan Stanley and Deutsche Bank led the bridge, which was placed a year ago.

Capa Cana, the luxury Dominican resort development company, is seeking an exchange offer for some $250m in outstanding 9.625% 2013 notes, say people close to the company. The firm, which Monday says it succeeded in avoiding default on a $100m bridge loan by coming to terms with lenders, is apparently looking to announce an offer by Friday, according to an executive on the deal. “We want to give [holders] a better note than what they have now,” says the person, declining to provide more specifics. Buysiders and sellsiders familiar with the credit say they have not been informed of any exchange plans, and express puzzlement at what the possible benefits for the company would be for an exchange today, as the coupon is relatively low and amortizations on the bond only begin in mid 2010. To avoid tripping default covenants, Cap Cana must replenish a debt service account for the notes by January 2. The executive close to the company says it plans to do so with some $12.5m by the expected deadline. Speculation in the buyside and analyst community covering the credit suggests Cap Cana has sought to replace many of the properties backing the notes with lower quality real estate assets, a move permitted within the bond agreement. Such a move could reduce the company’s loss in the event of a default or bankruptcy farther down the line because collateral subject to seizure would be worth less. Cap Cana hired New York-based Weston Group to advise it on its debt situation.

LatAm’s last line of defence – sell side analysts – has fallen, indicating further weakness in market sentiment. “It is more of a corporate problem than a sovereign problem, but in many countries it will become a sovereign problem,” Paulo Leme, head of EM economic research at Goldman Sachs. “Latin America is back to the game again,” he adds, highlighting the region as among the most vulnerable. “We thought it was much safer, the sovereign is in pretty good shape, but once you work it out the corporate maturities are quite spectacular,” says the veteran analyst, highlighting Argentina as a soft spot. “In Latin America, the country where we like to buy protection is actually Colombia,” says Daniel Tenengauzer, head of global currencies strategy and EM debt strategy at Merrill Lynch. “We will continue to see deleveraging, a strong dollar, much weaker exchange rates in the region, that will have unfortunately a very strong pass through effect, as we’re seeing in Mexico and Brazil,” he adds. “Until there’s some recovery in the US I don’t think we’ll see a lot of recovery in emerging markets corporates,” says Anne Milne, head of Deutsche Bank’s LatAm corporate bond research group. “I do think you’re going to see the Latin American names outperform first,” she adds. They were speaking at an EMTA event in New York last week.

Offshore law firm Harney Westwood & Riegels has announced the addition of Jonathan Culshaw to its LatAm practice. Culshaw has experience providing advice on transactions including project finance and debt offerings, as well as to investment funds and on general corporate and commercial matters. He has worked with LatAm clients such as Petrobras and Vale on global deals and will be based in the Cayman Islands.