Category: Brazil

Morgan Stanley predicts Brazil’s GDP will shrink by 0.5% in 2009, from a previous estimate for a 1.0% drop. In 2010, the shop forecasts the economy will grow 3.5%, an adjustment from its previous call for growth of 2.5%. Morgan Stanley sees the BRL ending the year at BRL1.90, stronger than its previous forecast of BRL2.10. However, it cut its BRL forecast for year-end 2010, when it sees it at BRL1.8 per USD from a previous estimate of BRL1.9.

Brazilian refractory materials producer is still in discussions to renegotiate terms on a $475m 6-year bilateral loan it raised with JPMorgan last year to help it acquire Germany’s LWB for $938m, including $542m in assumed debt. It is heard targeting an announcement on the renegotiation by the end of August, says a person familiar with the process. The company’s leverage spiked in the past two quarters as revenues slumped in the face of an industry-wide downturn. Magnesita makes materials used in steel furnaces, among other things. In Q1, the company is heard to have received a 90-day waiver on the loan. At the time of funding in November, the loan paid the equivalent of CDI plus 134bp, though that was still when the company was a BB rated issuer. In June, Moody’s cut Magnesita’s rating to B2 from Ba3, citing excessive leverage of 5.9x as of March 31, and the fact much of its foreign currency debt is unhedged. Magnesita’s acquisition of LWB, led by its financial sponsors at GP Investments, won the company accolades from market participants. But the deal ended up burdening the company with debt at a time when it was openly exposed to an industry downturn.

Natura has priced its anticipated equity follow-on offering at BRL26.50, a slim 1.3% discount to Thursday’s close and virtually flat to the opening price of BRL26.51. Final distribution terms were not available late Thursday, but if the Brazilian cosmetics company succeeded in placing an optional block of 7.4m shares in addition to the 49.3m originally scheduled to be sold, it will have raised BRL1.5bn. The small concession to investors indicates US accounts in particular put in a strong bid for Natura’s shares, say Brazil-based portfolio managers. Foreign investors generally consume upwards of two thirds of new issues in Brazil and tend put in their orders towards the end of bookbuilding. Some buysiders note the company’s bankers pushed hard to price the deal, whose proceeds are going towards company insiders who are selling shares, at the highest level possible. The secondary issue will increase Natura’s market cap by upwards of 15% and thus should merit a bigger discount, argues an investor whose shop bought the shares. Brazil-based equity managers say they hoped for a discount of up to 5%, though they are not surprised to see the deal price at the tight end, given how other trades like MRV (2.00%), Hypermarcas (2.10%) and Brasil Foods (1.45%) have priced. “This is an excellent company with great fundamentals,” says a Brazilian buysider. It remains to be seen how Natura’s shares will trade starting today, given Natura and its banks may have squeezed out much of the potential lift in the stock. Itau BBA, JPMorgan and UBS Pactual led.

Brazil’s Grupo Votorantim has raised a $350m pre-export loan with a club of 7 banks. The self-syndicated deal cost the company slightly more than what other Brazilian issuers might have achieved at the same tenor, say bankers. Voto is paying Libor plus 350bp for the 3-year amortizer, some 50bp-75bp north of what other investment grade borrowers in Brazil might have been asked to pay, according to the estimate of one lender familiar with the credit. However, the cost is justified based on the fact banks already have substantial exposure to Voto and its subsidiaries, as well as the trouble some of its companies, including VCP, have undergone in the past year. Fees were heard in the 125bp area. Bofa-Merrill, BNP, Citi, HSBC, Santander, SocGen and WestLB make up the lending group, presumably having each taken $50m tickets.

In stark contrast to Brazil’s blowout $500m 2037 tap, a new $180m 5-year bond from Mexican homebuilder Javer was heard trading down 1.0-1.5 points after pricing Thursday. “It could end up being a Homex, or it could end up being a Desmet,” says a west coast-based EM investor who passed – referring to a performing comp and a defaulted Mexican homebuilder – but was eyeing the bonds in secondary. Other EM assets were generally firmer in the session, helped by a rally in core markets and surge in commodities. The deal was the first true LatAm high-yield corporate from the recent surge in new issuance, and pays 13%, the highest coupon in years from a regional name. The privately held builder of entry-level and middle-income housing priced the 2014 at par to yield 13%, in line with 13% area guidance. Unlike other recent LatAm supply, which has been hugely oversubscribed, the issue drew about $250m in orders from some 65 accounts, according to bankers on it. Javer was seeking up to $200m. About 15% went to US high-yield investors, following reverse-inquiry after a June non-deal US and London road show, bankers on the deal add. Despite government support stimulating the Mexican homebuilding sector, investors may have been hesitant about an unfamiliar high-yield borrower. Bankers on the deal played down the soft aftermarket, noting that there is little flow in an issue this size. They emphasize the challenge of raising $180m for a first-time Ba3/BB minus issuer. Bank of America-Merrill Lynch and Credit Suisse managed the transaction. Javer also raised last year a $160m 5-year loan at Libor plus 350bp through Credit Suisse. “Javer is in a position to deliver on its growth expectations, though it will see pressure from debt service payments,” says a New York-based LatAm corporate credit analyst who declines to be identified, noting that 13% was a fair price. Proceeds will repay around $39m in holdco Proyectos del Noreste debt via dividend payment and also cover general corporat

Capitalizing on ample liquidity and increasingly bullish Brazil sentiment, the sovereign has tapped its 7.125% of 2037 bond, paving the way for other LatAm borrowers to access duration. “Brazil effectively reopened the long end for emerging markets,” says a banker on the deal. The longest dated cross-border LatAm issue since May 2008 raised $500m at 108.630 to yield 6.450%, or T+195bp, on almost $7bn in orders. Guidance was 6.60% area, versus 110.8 to yield 6.30% at the Tuesday close, and the issue was up at 109.7 in the aftermarket. Bankers on the deal spotted the closing yield at 6.33%, making the concession just 12bp. They note that the sovereign was expecting to pay 15bp-20bp, and add that curve inversion helped it price through the 2019. Brazil had been heard mulling a tap for several days, and DCM bankers were strongly advising the trade based on firm investor demand, as demonstrated by hefty oversubscription for new LatAm issues. “Looking at the curve, I think it was pretty aggressive,” says a banker away from the transaction. “It’s a good sign for all the other issuers,” he adds. The deal – which high grade style was marked “will not grow,” excluding a 5% Asia greenshoe – takes the outstanding amount to $3bn. Deutsche Bank and JPMorgan led the trade, which went mainly to fund managers in the US. Besides encouraging opportunistic sovereigns like Colombia, Peru and Panama, Brazil’s success should also help Brazilian corporates achieve tenor. “There is appetite for duration, but only the right names,” says a banker on the Brazil tap. DCM bankers are advising all clients to seize the window while it lasts. The buyside has hurled almost $37.00bn in orders at the $6.25bn cross border LatAm flurry so far in July, a 13-fold leap versus the $470m dribble of July 2008. “The only surprising thing is what took them so long,” says a corporate debt analyst, who adds that a glut of US new issue in prior months proved liquidity was back. “It’s almost too good to be true,” c

Brazilian beef processor Independencia is working on a new proposal to restructure some BRL3bn in debt, including $525m in bonds. Following a 2-week US and Europe tour to pitch its original proposal, the company and its advisers, Sao Paulo-based Arsenal, are planning an overhaul to reflect feedback from lenders and bondholders. For holders of the US notes, that includes doing away with – or finding an alternative to – a proposed feature that converts 75% of outstanding bonds into perpetual 8% notes with no principal unless there is a sale. “The main changes that are being made affect the cashflows and seniority [of the creditors],” says a person eyeing the process, declining to be more specific. “[The company is] trying to create a menu of options where different creditors can choose what will work best for them,” he adds. The person close to the debtor notes that the aggregate proposal is being designed to be able to accommodate a number of different combinations of choices by creditors. Independencia wants to issue the revised plan in the next 2-3 weeks.

Moody’s has downgraded the Brazil national scale rating for Usiminas to Aa1.br from Aaa.br amid concerns about operating performance and fears that the global steel industry will be slow to recover. The demotion affects BRL500m in subordinated unsecured debentures due 2013. Moody’s also cuts the outlook to negative from stable on Usiminas’ Baa3 global scale senior unsecured issuer rating. Moody’s says the issuer’s gross margins are being affected by high-cost iron ore and coal inventories, which are likely to continue to impact results. “The rating action also reflects a reduction in covenant cushion at Usiminas, which has slightly weakened its liquidity profile,” says the agency. “We anticipate an increase in its indebtedness in the near term to fund capex, which, when combined with the weaker operating performance affecting cash flow, will result in tightened headroom under financial covenants of certain of the company’s outstanding debt instruments,” it adds. Moody’s notes that Usiminas maintains a strong cash position of BRL2.8bn, which compares well with short term debt of BRL1.0bn.

Seven units of Brazil’s CPFL are on track to raise BRL1bn in local 2-year notes. Today, issuances from 4 units will clear, while another 3 are scheduled to clear August 10. The funds have been raised over the past 2 weeks, says a CPFL finance executive. The following entities raised 2-year funds at a range of different prices, reflecting their cashflows and credit metrics: Cia. Paulista de Forca e Luz issued BRL175m at 110.30% of the CDI; RGE raised BRL185m also at 110.30 of the CDI; CPFL Geracao did BRL425m at 109.80% of the CDI, and CPFL Brasil got BRL165m at 111.00% of CDI. Next month, CPFL Jaguari, CFPL Sul Paulista and CPFL Leste Paulista will raise a combined BRL60m at 111.90% of the CDI, say company officials. The deals had to be done on a separate basis because of regulations prohibiting transfer of funds from one entity to another. HSBC led the deal, with UBS Pactual as joint bookrunner.

The IMF welcomes signs that the Brazilian economy has started to improve and considered it to be in a favorable position to weather well the global crisis. In an executive board summary following a recent the Article IV consultation, the fund praises the Brazilian authorities’ robust policy framework and sound prudential supervision, which has allowed an appropriate and timely countercyclical policy response. “If the growth outlook were to deteriorate significantly from the authorities’ current projections, directors saw room for additional fiscal and monetary easing, subject to careful monitoring of market reaction,” says the IMF. The fund also endorses the authorities’ planned fiscal stimulus and reduction in the primary fiscal surplus target in 2009. “If revenues are less buoyant than projected, directors saw scope for further flexibility in the fiscal target through the use of the adjustor for public investment and resources from the sovereign wealth fund. They encouraged the authorities to contain other current expenditure, including wages, which will be difficult to reverse as the economy recovers,” adds the fund. It also stresses the importance of keeping public debt on a declining path over the medium term, and welcomes the authorities’ plans to return to a higher primary surplus in 2010 as the economy recovers.