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Sabesp Preps 2014 BRL Issue

Brazilian water utility Sabesp is preparing to place up to BRL600m in 2014 debentures, likely in June, according to a banker managing the transaction. Banco do Brasil, Caixa Economica Federal and HSBC are coordinating the sale. Brazilian utilities stand to be important players in reopening the domestic bond market, with Energias do Brasil is expected to sell BRL230m of promissory notes in May through HSBC. CPFL Energia has meanwhile wrapped up a BRL471m promissory notes issue, according to an investor relations official, done through 6 subsidiaries. The 1-year notes pay 118% of DI. Funds raised from the operation will be used for the units’ working capital. HSBC coordinated that sale, rated A1 on a national scale.

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Barclays Scoops up Itau Unibanco Shares

Barclays has accumulated a 5.37% stake in Itau Unibanco. The UK bank now owns 111.4m shares, which means its stake was worth BRL3.07bn at yesterday’s close. The share purchase, made public through a filing with the CVM, is for investment purposes only and is not part of a broader attempt to affect the existing shareholder structure, say Barclays officials in a letter issued to the regulator.

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Cemig Set for Downgrade

Moody’s has placed Cemig’s ratings under review for downgrade following the energy company’s announcement that it acquired a 65.86% stake in Terna Participacoes for about BRL3.5bn. Cemig also has said it intends to acquire the remaining shares it has not purchased from minority shareholders. The rating action affects around BRL840m in debt instruments. The review, says Moody’s, will focus on the impact of this acquisition on the company’s credit metrics, liquidity and debt profile while also evaluating the expected growth in internal cash generation of the combined companies with the higher level of debt. Also under evaluation will be Cemig’s ability to finance future capital expenditures and maintain the past level of dividend distributions in tandem with an anticipated more levered capital structure. On December 10, Moody’s gave Cemig an issuer rating of Baa3.

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Redecard Plans Share Buyback

Brazilian credit card services provider Redecard has approved a buyback program of up to 5.5m shares, representing about 1.7% of its outstanding float. The program will be in place until April 23, 2010. Shares of Redecard, which is controlled by Itau Unibanco, closed Monday at BRL29.21. Last month, Citi divested its stake in Redecard, selling 90.3m shares at BRL24.50 each to raise BRL2.28bn in what was the first Brazilian public equity transaction in more than 7 months.

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Brazil Real Estate Partnerships Accelerate

Brazil real estate partnerships are picking up as developers chase opportunities to buy into new projects at what they perceive to be attractive valuations. GoldenTree Insite, a New York-based real estate private equity manager, has just spent BRL100m to acquire 50% of a high-end residential project in the city of Sao Paulo called 106 Serido. GoldenTree bought two 25% stakes from KlabinSegall, a seller who itself is close to being sold, and Construtora Sao Jose, says an executive on the deal. GoldenTree has a number of residential developments in Brazil that span low, middle and high income demographics. Meanwhile, Cyerla has purchased a 50% stake in Goldsztein Participacoes, which has developments in Brazil’s southern states, for an undisclosed amount. The stake was paid for with Cyrela shares.

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Cemig Buys Terna from Italian Parent

Cemig has agreed to acquire a 65.86% stake in grid operator Terna Participacoes for BRL2.33bn cash, or BRL40.29 per share, some of which may come from issuance. After concluding the deal, the Minas Gerais state-controlled utility plans to announce a public offer to acquire all outstanding shares of Terna, a unit of the Italian grid operator of the same name. “The company has a strong cash position, but is also considering its options in the markets,” says an investor relations official. He adds that a decision has yet to be made on how it will finance the transaction. Bankers familiar with the deal expect Cemig to tap local markets to plug any gap. For the acquisition, Cemig estimates an IRR of 10.6% in real terms for the base case and above 12.0% considering potential synergies and goodwill amortization. It adds that the price paid equals 8.1x 2009 Ebitda, which it says is in line with other transactions in Brazil. Terna had been tipped to sell its Brazilian unit – which operates transmission assets in 11 Brazilian states – amid expected consolidation in Brazil’s energy sector. Cemig says the deal will increase share of the Brazilian transmission market to 12.6% from 5.4%, as measured by the annual permitted revenues for the 2008/2009 tariff cycle. Credit Suisse, Rothschild and Vergent Partners advised the target and Morgan Stanley advised Cemig. In a research report, Itau found the BRL40.29 per share price to be “high,” representing a 26% premium over the previous day’s closing price of BRL32.00. The shop estimates that the total price may be BRL4.7bn, including the follow-on and expected assumed debt. Moody’s Friday put Cemig’s Baa3 global and Aa1 national ratings under review for downgrade, citing concerns about credit metrics raised by acquisition. The agency estimates a total price of BRL3.5bn. The acquisition still must be approved by Brazilian energy and antitrust regulators, and Cemig expects it to conclude by September. The company plans to make more acqui

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Fitch Expects Upswing in Brazilian Beef

Larger Brazilian meatpackers should begin to see their fortunes turn around, Fitch says in a report, at the expense of struggling medium-sized competitors. Names like JBS, Marfrig, Minerva and Bertin should benefit from higher market share and better margins, as they are able to pay cash to suppliers and have strong relationships over distribution channels, while smaller names like Independencia and Arantes have filed for bankruptcy protection. “Fitch expects free cashflow generation for these [larger] companies to turn positive in 2009 as select companies not only benefit from repercussions of bankruptcy, but also from better working capital management and lower capital expenditures,” the agency says, noting that they also benefit from government support. Brazilian government recently announced that it intends to support the food sector with BRL10bn in loans through BNDES. Further government support to the sector might include the speedy return of tax credits and the elimination of taxes on meat to stimulate domestic demand, Fitch says.

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JBS Harnesses US High Yield

In a transaction sold almost entirely to the US high-yield market, Brazil’s JBS has sold $700m in 2014 bonds, upsized from $400m on the back of a $1.2bn book. The meatpacker’s JBS USA and JBS USA Finance units priced the 11.625% notes at 95.046, to yield 13.000%, or T+1114bp, in line with 13.000%-area guidance given Monday. Early whispers were 12%-13%. About 60 accounts bought into the book, according to bankers on the deal, with only about $10m going to EM investors. The bonds were heard trading at 95.75-96.25 late Wednesday. JBS has targeted a new investor base – and bypassed EM investors wary of the Brazilian beef sector – in order to better match its liabilities with revenue sources. The issuer is in a unique position, says an EM investor who passed, as there not really other Brazilian corporates with as large of a US asset base that would let them tap US high-yield in this way. Although seen as a success in that JBS termed out its debt without paying the high-teen yields of its existing bonds, the transaction may not serve as much of a guide for other LatAm high-yield issuers. “This is a strict US play,” says a DCM banker away from the deal, noting that US high-yield buyers are familiar with the assets of Swift, which JBS acquired in 2007. North America accounts for more than 70% of JBS’ global consolidated operations, following the acquisitions of Smithfield Beef last year and Swift in 2007. The new bonds are guaranteed by the issuing US units and also the JBS SA parent. The issuer also agreed to tighter covenants – including a 3x total net leverage covenant – rather than the standard interest coverage covenant more common to the US high-yield market. JBS will use proceeds to repay intercompany debt owed to JBS SA related to the Smithfield Beef acquisition, and for general corporate purposes. JPMorgan and Bank of America managed the sale, rated B1/B+. The other two single B transactions this year, $200m from Kansas City Southern de Mexico and $335 from Digicel

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Bradesco ups Stake in Espirito Santo

Brazil’s Banco Bradesco says it has spent BRL296m to up its stake in Portugal’s Banco Espirito Santo to 6.05%. The shares were acquired on the open market via purchases at the Lisbon stock exchange, says the company in a statement. “The operation focuses on meeting the interests of the Bradesco Organization and Espirito Santo Group to extend relations,” says the statement. In other words, the goal of the purchase is to align the interests of the two banks and deepen the two institutions’ relationship. The statement does not say how much Bradesco owned prior to its most recent purchase. Espirito Santo’s budding Americas investment banking arm BES Investimento, is staffed with former WestLB executives seeking to do project finance business in the US and LatAm.

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US HY Investors Hunger for JBS

Brazilian beef producer JBS is set to price today a 2014 bond through its US units, to yield in the area of 13%. Bankers managing the sale say the book was approaching $1bn in size late Tuesday, and could be upsized from a targeted $400m. Some $300m in orders were contingent on the Brazilian meatpacker accepting a 3x total net leverage covenant – rather than the standard interest coverage covenant more common to the US high-yield market – which it agreed to Tuesday. More than 95% of the issue is expected to go to US high-yield investors, with a small number of EM accounts also participating, says a person on the deal. The bonds are guaranteed by the issuing US units, JBS USA and JBS USA Finance, and also the JBS SA parent. JPMorgan and Bank of America are managing the sale, rated B1.

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