Argentina’s Transportadora de Gas del Norte (TGN) may default by the end of the year, according to Fitch, which cut the credit to C from CCC and senior unsecured notes due 2012 to CC from CCC, keeping all ratings on negative watch. The agency also predicts recovery of 11%-30% in the event of default. “The rating downgrades reflect Fitch’s expectation that TGN will miss principal and interest payments over the near term, and potentially debt payments due as soon as December 31, 2008 despite sufficient cash on hand,” says Fitch. “The company’s precarious financial difficulties stem from deterioration in TGN’s cashflow after one of its export transportation customers stopped paying earlier this year; continued curtailments of natural gas exports by the Argentine government further heightens the potential for additional export revenue losses,” it adds. The next interest and principal payments due December 31 are $15.8m and $6.3m, respectively, says Fitch, adding that for issuers in the C rating category, default is deemed to be imminent. As of September, TGN’s total debt was $345m, composed of $141m amortizing notes at 6.5% step-up due in 2012, and $204m bullets at 7.5% step-up due in 2012. Debt restructuring was completed in late August 2006, adds Fitch. TGN’s 6.5% of 2012 and 8% of 2012 were bid at 42 and 37, respectively, last week, according to Credit Suisse.
Yearly Archives: 2008
Fitch Chops Trump Bonds
Fitch has downgraded the rating of Newland International Properties’ $220m senior secured notes to B+ from BB. Newland is developing the Trump Ocean Club International Hotel & Tower in Panama City. The downgrade, says Fitch, is a result of the deterioration in global real estate markets and an increase in liquidity risks associated with the timely payment of the notes principal and interest. “Although the long-term solvency of the project appears strong (as evidenced by sales equaling approximately 80% of total available units and a construction escrow reserve sized to cover remaining build out costs), short-term liquidity stress could arise when cash on hand is not sufficient to cover timely payment of interest on the notes,” Fitch notes. JPMorgan, meanwhile, says that while it sees long-term value in the notes at current valuation and cash collateral, the market is pricing in too much of a collection default rate and too low of a liquidation price per unit.
Colombia to Ease Rates in 1Q09
Colombia’s central bank is likely to keep the monetary policy rate unchanged at 10% on Friday, although some shops believe a cut is already due. Credit Suisse LatAm economist Carola Sandy says she expects no change in rates at the upcoming meeting as a majority of central bank board members “think that inflation and inflation expectations are still too high to start easing.” Goldman Sachs senior LatAm economist Alberto Ramos also expects no change, but adds that “there is a 45% probability of a 25bp cut” Friday. Meanwhile, Barclays economist Jimena Zuniga expects a 25bp cut Friday. She says some central bank board members have been calling for a reduction, as inflation expectations have improved. “Inflation is expected to drop to 4.7% by December 2009,” she says. Most economists agree that the rate will be eased in 2009. “By August 2009, we expect the rate to have been eased by 200bp,” says Zuniga. Ramos and Sandy also expect cuts beginning in Q1.
Chile Outlook Still Stable, Says S&P
Despite creeping concerns about the copper-heavy sovereign, S&P has affirmed its A+ rating on Chile and maintains a stable outlook. “Chile has the highest sovereign rating in Latin America,” says S&P analyst Joydeep Mukherji. “This reflects its low public-sector debt and net external debt, ample fiscal flexibility, and increasingly prosperous economy.” Prudent fiscal management has led the government to accumulate assets in two stabilization funds that are estimated to approach 17% of GDP by the end of 2008, the agency adds. The public sector’s strong balance sheet, combined with a sound financial system and a stable political system, should allow Chile to withstand the impact of the global downturn while maintaining stability, S&P notes. The agency does not expect national elections in late 2009 to lead to a weakening of fiscal, monetary, and other policies, which have contributed to Chile’s solid economic performance for many years. “The new government might modify Chile’s fiscal rule, but it will likely maintain prudent policies that sustain investor confidence,” says S&P.
ENAP Plots Bond Return
Chilean state-owned oil and gas utility ENAP has received pitches from bankers for a $500m bond of up to 10 years maturity. Those who participated in the RFP process say ENAP could get a deal done in January, as long as it is willing to pay at least 100bp concession. Others say that a slew of US data will make the first month of 2009 very challenging for deals, many of which might have to wait until February or later. ENAP was last in the market in 2004, so it should benefit from scarcity value as well as a relatively positive zip code. Its last bond deal was a $150m 10-year through Deutsche Bank that came with a 4.875% coupon. Moody’s last week chopped ENAP to A3 from A2, citing weakened profitability and high leverage compared to peers. Debt-to-Ebitda rose to more than 15x over the 12 months to September 20, Moody’s says. The outlook is stable as Moody’s expects financial performance to improve over the near to medium term as a result of investment initiatives, reduced diesel demand from recent record levels and lower working capital needs.
Brazil’s Mercantil Retires 2010 Bonds
Brazil’s Banco Mercantil has repurchased $23.451m of the up to $100m face value of its 8.5% of 2010 bonds that it was targeting through modified Dutch auction. The deal came at 85, the minimum price set at the auction which closed this week, and fell slightly short of 30% participation expectations. “A lot of people didn’t want to sell, they like the bank,” says a banker close to the trade, adding that much of the paper was in retail hands. The bonds were trading 78-83 before the buyback was announced last week and the company is funding the deal with cash on hand. UBS is dealer manager. There was $175m outstanding before the repurchase.
Barbados Reported Seeking Jumbo Funding
Barbados is seeking to raise funds that could amount to 13% of GDP, according to local press. The sovereign needs $500m to pay off debt, says Barbados’ Nation News, which adds that funds would be raised by issuing Treasury bills, tax reserve certificates, and tax refund certificates. The newspaper adds that the prime minister is pursuing a resolution to raise BBD1bn ($500m) to retire debt. Analysts say that the amount is very high versus the size of the economy. Nation News adds that Barbados, which has GDP of close to $4bn, is also seeking a $35m World Bank loan. Barbados last went to international capital markets in November 2006, when it retapped 6.625% of 2035 bonds to raise $65m at a yield of 6.505% through Deutsche Bank as sole bookrunner. Credit analysts say that the highly indebted but highly rated sovereign would struggle to get anywhere near that pricing in current hostile markets. Government officials in Barbados refer all inquiry to the prime minister, who was not immediately available for comment.
CAF Takes Ecuador Hit
S&P has slapped a negative outlook on CAF’s A+/A-1 rating amid concerns about exposure to Ecuador, which is in default, as well as Venezuela and Argentina. “We revised the outlook to negative because the credit risk embedded in CAF’s portfolio rose sharply following Ecuador’s decision to default on its bonded debt,” says S&P credit analyst Lisa Schineller. Lending to Ecuador’s public and private sectors constitutes CAF’s single largest country exposure, at 20.8% of the multilateral’s loan portfolio and 46.3% of shareholder equity as of September 30, says S&P. Embedded credit risk has also risen with the revision of S&P’s outlook on Venezuela to negative (14.8% of CAF’s loan portfolio, 32.9% of equity) and lowering of Argentina to B minus from B (4.9% of CAF’s loan portfolio, 10.8% equity). “The ratings on CAF continue to incorporate our expectation that CAF’s debtors will treat it as a preferred creditor,” says Schineller. “In particular, we assume that Ecuador will remain current on its payments to CAF, as CAF could be the country’s only source of external financing,” she adds. Nonetheless, risk embedded in CAF’s core lending portfolio has increased, as it continues to lend to Ecuador during what S&P expects will be a period of pronounced macroeconomic stress. “We could lower the A+ long-term and A-1 short-term ratings on CAF if Ecuador were to run arrears with the bank,” says Schineller. “We would also consider a downgrade if the ratings on one or more of CAF’s other large borrowers are lowered or if CAF’s currently strong financial profile weakens materially,” she adds. CAF is among the region’s highest rated borrowers and typically leads the way back for issuers when markets slam shut. The multilateral earlier this week tapped the COP market.
JPMorgan Merges ECM and DCM
JPMorgan has brought its LatAm capital markets origination team under a single group to be headed by Roberto D’Avola, executive director formerly in charge of LatAm equity capital markets. The move is designed to adapt to changing markets, say people familiar with the initiative, and to address client financing needs better. D’Avola will now oversee bonds, loans and equities, reporting to Carlos Ruiz de Gamboa who oversees origination, derivatives and local market sales and structuring. Gamboa reports to Nicolas Aguzin, chairman of LatAm and head of investment banking. The change at JPMorgan also coincides with the departure of at least three senior executives responsible for LatAm DCM, including Mark Tuttle, head of debt markets, Cynthia Powell, head of EM debt syndicate, and Ricardo Rubio, head of loan syndications. Bank officials insist the layoffs and the internal reorganization are merely adaptation to new market conditions and that JPMorgan is neither exiting bonds and loans, nor has any plan to do so. Competitors are meanwhile doing their best to portray the move as a pullback by a shop that has long been a top 5 DCM player in the region. “They lost all expertise,” says a senior DCM official at another firm. “In this market, it’s even more important that you know what you’re talking about,” he adds, referring to the importance of maintaining separate ECM and DCM capabilities. Other shops like Citi and ABN have in recent years melded DCM with syndicated loans, but equity desks are kept separate. However, others say the combination may make sense, particularly as deeply subordinated equity like debt instruments return and conventional ECM remains shut. “They are a very good house,” says a senior DCM banker at a rival shop, speaking of JPMorgan. “You are talking about financing solutions to the same client base,” he adds.
Mexico Train Operator Upsizes HY Notes
Kansas City Southern has priced a $190m issue of senior notes due 2013 with a 13% coupon to yield 16.5%. The deal through Morgan Stanley was upsized from $175m. Proceeds and other borrowings will be used to repurchase $200m aggregate principal amount of its 7.5% senior notes due 2009. KCS has railroad investments in the US Mexico and Panama. International holdings include Kansas City Southern de Mexico, serving northeastern and central Mexico and the port cities of Lazaro Cardenas, Tampico and Veracruz, and a 50% interest in Panama Canal Railway Company, providing ocean-to-ocean freight and passenger service along the Panama Canal. KCS runs what it calls a NAFTA railway system, linking commercial and industrial centers of the US, Mexico and Canada. Settlement is scheduled for Thursday. Moody’s rates the notes B2 (stable).