Category: Brazil

Brazilian meatpacker Independencia, which is some 15 days away from resubmitting a proposal to restructure its debt, is working on final terms of a senior secured DIP financing worth up to BRL330m. Investors and advisors to the company see the facility as a key component to the restructuring because it will enable resumption of operations. About 35% of the facility will be used to repay cattle suppliers, who have halted shipments because Independencia has not paid down lines with them, says an executive close to the company. The rest will be used for working capital. The facility is roughly equal to the company’s 12-month Ebitda estimate of BRL300m. A term of 5-years at a rate of 15%-20% is being considered for the facility, which will be senior to all other debt and secured by the company’s assets, estimated to be worth BRL1.1bn. Some assets are backing a portion of Indpendencia’s local debt. The remainder would be used for the DIP, resulting in a collateralization of around 1.5x-2.0x, says an executive involved in the process. Bradesco is heard to be among the Brazilian banks considering participating in the DIP deal, while US-based hedge funds are also interested, say people near and away from the process. Tickets are likely to go for $20m-$30m. At least one US-based investor has recently expressed interest in setting up a fund dedicated to investing in Brazilian turnaround situations, say people close to the initiative. The Independencia transaction may provide a first opportunity. As for the rest of the restructuring, Independencia advisors say they are studying ways to redesign the proposal to account for bondholder feedback. A US-based investor says the first offer was too bank creditor friendly, and implied in an NPV recovery for the 9.875% bonds, of which there are $525m maturing in 2015 and 2017, of around 25 cents on the dollar while allowing lenders near full recovery. The investor says he is hoping for an NPV recovery of around 35 cents in this deal. Th

Energisa, the Brazilian power holding company, will spend BRL75m to acquire the shares it doesn’t own of its three of its subsidiaries Borborema, Paraiba and Nova Friburgo, according to a statement. The move is being made to simplify the holdco’s ownership structure and consolidate its holdings, which includes a total of 9 different units located around the country. Energisa is publicly listed, but is largely held by two large groups of private shareholders.

Brazil’s discretionary fiscal policy measures should be focused more on increasing public investment rather than increasing domestic consumption , according to Deutsche Bank analysts. The level of government consumption is already high in Brazil, says the shop, and is one of the main causes of high interest rates and low domestic investment. Brazil’s public debt position is also much less sound than China’s, making temporary investment measures preferable to potentially more permanent consumption measures, it adds. Over the longer term, Brazil will have to raise its savings and investment ratios if growth is to meet the government’s informal expansion target of 5%, says Deutsche.

Brazil’s Lupatech has sold shareholders BRL328m in 2018 convertible debentures. The industrial valve manufacturer completed on Monday a sale of notes to 75 different investors, it says, though Brazil’s development bank, the BNDES, ended up consuming 90% of the issue, according to a Lupatech IR official. The transaction launched in July extends Lupatech’s average tenor to 6.0 years from 1.5 and increase its proportion of BRL-denominated debt. The BNDES also approved earlier this year BRL441m in financing facilities for Lupatech. BNDES, which helped structure the transaction alongside Lupatech, had agreed to purchase 11.5% of the issue plus any remaining unsold convertibles. The notes will pay IPCA plus 6.5%, and can be exchanged for shares starting in year 3 using a conversion mechanism that Lupatech has claims is a first for the Brazil market. The conversion price is equal to the market price, limited to a BRL17.50-BRL35.00 range, plus a diminishing premium equal to 100% of the price in the third year and 40% of the price in the eighth. The formula is designed to protect existing shareholders, Lupatech says. A buyer holding the debentures for 9 years will receive a maturity premium of BRL423.75 per BRL1,000, which increases total return to the equivalent of IPCA plus 10% annually, it adds. Lupatech can also call the bonds after 2 years. Proceeds will pay short-term debt and fund future acquisitions.

Brazil’s Magnesita Refratarios plans to raise BRL350m by offering 44.9m shares. Existing shareholders will be able to purchase the stock in amounts proportional to their holdings starting today through September 16. BNDESPar, the equity investor arm of Brazilian development bank BNDES and a Magnesita shareholder, plans to acquire a minimum of BRL55.9m in new shares, and could buy up to BRL245m if minority shareholders fail to exercise their full allotments. Magnesita plans to offer shares at BRL7.80 per share, the average price for the last 90 days. Shares closed Monday at BRL10.68.

Brazil’s development bank saw its net income drop 83% in H1 2009 to BRL702m. The BRL3.5bn drop in the value of its equity portfolio to BRL1.3bn is the main contributor to the poor performance in the semester, according to BNDES. Poor market conditions prevented the bank from getting out of its equity positions, it says, noting it only made BRL72m through divestitures in the period compared to BRL4bn in H1 2008. The other main reason was the higher loan provisioning the BNDES had to make during the period, which reached BRL1.1bn, versus BRL400m in the same period last year. The bank says it took a conservative approach to provisions, despite the fact its default rate of 0.18% is well below the Brazilian average. Gross revenues at the BNDES rose BRL2.7bn in the period, from BRL2.1bn in the year-ago period.

Brazilian beef producer Minerva says it plans to raise between BRL100m-BRL160m through a private share sale. The company says its controlling shareholder, which according to Economatica is called Vdq Holdings and holds 68% of the company’s shares, will participate in the offering to maintain its current stake. The funds are being used to pay down debt and for working capital for its greenfield projects. Minerva went public in July 2007 via Credit Suisse and Itau BBA. It also has $200m in outstanding 9.5% 2017 bonds, which it last reopened in February 2007.

The board of Brazilian real-estate developer Cyrela Brazil Realty has authorized the company to raise BRL350m in debt. It does not specify the type of instrument, though it does note that it has hired Bradesco to lead a 5-year credit facility. “The [specific] characteristics of this raising of funds shall be [determined] at an opportune time during a board of directors’ meeting,” Cyrela says. It sold BRL500m in 2018 debentures in April 2008. Fellow real estate developer Gafisa has recently announced plans to come to the market for BRL250m in 2011s. Cyrela’s competitor Gafisa said last week it plans to raise BRL250m in 2-year debentures to boost its cash position as it ramps up production. Analysts view the move by Gafisa as a positive one for its short term capex needs, though they expect the company to continue considering an equity offering, whose purposes would include deleveraging, if its valuations improve.

Guilherme Pedras, head of the Brazilian treasury’s public debt operations department, has been tapped to join the IMF, according to the finance ministry. Pedras will be involved in projects that “assist other countries in managing public debt, based on the knowledge acquired at the national treasury as a public servant,” it says. He will be replaced by his deputy head Fernando Garrido.

Brazilian companies’ liquidity should continue to deteriorate in the next 12 months, Fitch says, though the risks associated with this tight liquidity are becoming more moderate. In a report, the agency explains that a fall in operational cash generation, greater indebtedness, weaker liquidity and limited access to more costly, shorter maturity credit is expected to continue to pressure the payment capacity of various Brazilian companies for at least the next year. Most Brazilian corporates are slowly regaining access to both local and international capital markets and bank credit lines are showing clear signs of recovery, says Fitch. But it expects to see a greater dependency on refinancing sources next year given the larger volume of debt to be amortized, particularly for more cyclical sectors and businesses based on commodities and exports. A sustainable return of credit lines and greater access to the debt market will be an important driver in minimizing greater refinancing risks and consequent pressure for new downgrades, according to the report.