LatAm borrowers seize loan market liquidity to squeeze pricing

High liquidity among lenders and low deal flow is keeping pricing decoupled from increasing credit risk, market sources tell LatinFinance. 

AES Dominicana closed a bridge loan in the first week of December, securing a long tenor for the format and increasing the size of the deal from target. The deal came a few days after Mexican meat processor Grupo Viz signed a dual-currency loan package. The region’s banks are also heard to be looking increasingly to the loans market – and steering away from bonds – as they seek out the best cost of capital. 

Conditions are getting tougher for high yield borrowers – yet even there, lenders are willing to take a look at transactions on a case by case basis. 

The project finance market presents a similar landscape. “Based on credit risk, deals in Mexico and Peru should be priced higher than Chileans, but this is not necessarily the case,” a source in the project finance market said. In light of lenders looking to put capital to work amid a scant number of deals, some developers are pushing for aggressive terms.

E-CL, GDF Suez’s subsidiary in Chile, is thought to be seeking a tenor of more than 20 years and tight margins for a transmission line financing. Consortium Nuevo Pudahuel, which is developing the expansion to Santiago’s airport in Chile, is gauging feedback from banks on terms that do not match traffic risk, LatinFinance heard.

Lenders are beginning to perceive a slight adjustments of terms to reflect a higher credit risk and deteriorating economic conditions, sources say. However, uncertainty prevails, as lower volume of deals in the market could keep pricing low as lenders compete for fewer transactions.

The exception is Brazil, however. There, banks are treading with particular caution when they evaluate credits given the difficult economic and political backdrop. LF