Brazilian aviation major Embraer is expected to name Luiz Carlos Aguiar its CFO, effective January. The former Banco do Brasil banker is currently Embraer’s executive VP for the defense and government market. He will replace Antonio Luiz Pizarro Manso, who has CFO of Embraer since 1995.
Category: Daily Brief
Posted inDaily Brief
Cap Cana Buys Time As Lenders Squirm
Cap Cana, the high-end Caribbean resort, has put a thin band-aid on a worrisome situation surrounding a $100m bridge loan that came due November 19. Miguel Guerrero, Cap Cana’s director in corporate finance and IR, tells LatinFinance the company has extended the maturity date of the bridge by six weeks until December 29, thereby avoiding a default that would have triggered cross default clauses on the company’s outstanding bonds. The group of lenders holding the bridge has also changed, says the executive. At least one of the six asset managers – understood to include five hedge funds and one larger mutual fund – said they wanted to sell down their position in the bridge loan, preferring to take a haircut today over holding their portion for an indefinite period of time, say executives familiar with the process. The new composition of the lending group is unknown. “This is positive news because it demonstrates willingness on both sides to remain at the table,” says one executive familiar with the company but away from the talks. Market participants have in the past weeks come to question Cap Cana’s willingness to meet its debt obligations, which has helped keep its bonds trading in the low 20s. The company warned on November 12 it was preparing itself for a cross default event thanks to worsening market conditions that have made it impossible to refinance the bridge. Cap Cana has hired Weston Financial Group to advise it on its debt negotiations.
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Collateral Concerns Loom for Cap Cana Bonds
Lack of transparency at Cap Cana, the Dominican greenfield resort project, has vexed analysts seeking to ascertain the risk and recovery value for the company’s outstanding bonds – some $250m in 9.625% 2013 notes issued in 2006. With few clear and hard facts from Cap Cana’s management regarding the performance of the high end real estate project, credit analysts find themselves having to speculate on the implications of statements made by the company. For Sam Fox, head of EM structured finance at Fitch, which rated the notes ahead of their issue, the main questions revolve around three main points: how much capital is available in the deal’s escrow account and whether it is enough to cover the cost of the first phase of construction, slated to end in the Q1 2009; what specific properties are backing the 2013 notes; and whether Cap Cana’s holding company is committed to guaranteeing completion of construction should the project run out of cash. Separately, in a November 17 report on the credit, JPMorgan observes the Cap Cana’s latest remark on the first phase of construction is unclear about the progress it has made on construction. “The company’s press release … does not provide a clear answer to the status of Phase I,” notes the report, which goes on to infer the company is probably close to a point where it can release some of the assets that back the notes. As questions on the credit multiply, the company’s management has been increasingly hard to reach, says one analyst.
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Brazil Grants BRL1bn Transmission Projects
Brazil’s government has awarded three packages of transmission lines totaling BRL1bn to connect renewable energy production in the states of Mato Grosso do Sul and Goias, electricity regulator Aneel says. Spain’s Cobra won the rights to build and manage 793km of lines, requiring an estimated investment of BRL357m. The Brazilian unit of Spanish utility Elecnor got a 616km package valued at BRL225m. Transenergia, a subsidiary of Electrobras, won the third lot, totaling 635km and requiring an estimated investment of BRL206m. The lines are expected to be completed by 2010 and will connect 27 bagasse-fired and small hydroelectric generators to the national energy grid. While not small, Monday’s auction, merely serves to whet appetite for Thursday’s auctioning of transmission capacity connecting the Rio Madeira hydroelectric projects in the Amazon region. Aneel plans to put up 6 packages totaling 2,375km that should require BRL7bn-BRL9bn in investment and receive significant funding from development bank BNDES.
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S&P Knocks Mexico Units of GMAC, Ford Credit
S&P has lowered the national scale ratings of GMAC Mexicana to CCC from B minus, and of Ford Credit de Mexico to B+ from BB, it says. Both actions follow cuts in the ratings of each of their respective parents, and both ratings continue with a negative outlook. The Ford action centers on the parent’s “difficulties maintaining necessary liquidity in 2009.” S&P has lowered GMAC in response to a launch last week of an exchange offer for $38bn in bonds, which S&P views as a distressed debt exchange.
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Colombia Keeps Rate Unchanged
Colombia’s central bank has left the monetary policy rate unchanged at 10.0%, but analysts say easing may be due. “We have been forecasting the beginning of a monetary easing cycle during 1Q2009, but the odds are certainly increasing in favor of the beginning of a rate easing cycle already in December,” says Alberto Ramos of Goldman Sachs. The central bank also raised the inflation target for 2009 to 5.0% from a previously estimated range of 3.0%-3.5%. For 2010, the central bank fixed its inflation target at 4.0% falling to 3.0% in 2011.
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Venezuela Completes $800m Buyback
Venezuela has bought back more than $800m in external debt, according to local and wire reports citing an announcement from its finance minister. The purchases, done through the Bandes state development bank, were not announced formally and targeted the global 2027s and other bonds. Venezuela had been widely expected to buy back up to $1.5bn of its own debt for several months, and is possibly expected to do more. The government also says it was speaking to Ecuador and would respect any decision it made about repaying debt. Venezuela is thought to have exposure in first to default notes whose underlying is Ecuador debt.
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Pampa Calichera Tries Consent Boost
Chile-based Sociedad de Inversiones Pampa Calichera is looking to move $494m in debt to controlling holding companies, says S&P, which as affirmed its BB- corporate credit rating and taken it off credit watch negative. Pampa has also solicited the consent from holders of its $250m bonds to upstream cash to controlling companies in order to service the debt. Pampa is requesting that bondholders allow an increase in its dividend payout to 90% of cash flow and permit the distribution of an extraordinary dividend of $48m, adds S&P. It is also proposing to increase both the collateral securing payment of the bonds to 3x from 2x,and the reserve account to two from one coupon. Inversiones SQ, the ultimate controlling company in Pampa’s parent structure, says that if consent is granted, it would reduce Pampa’s controlling companies’ debt up to $170m during 2009. “The structural enhancements and the reduction of debt would balance the proposed changes at the BB- rating level, even if Pampa’s ability to build up cash would become somewhat diminished as a result,” says S&P. The agency also expects the company’s ultimate source of cash, Sociedad Quimica y Minera de Chile to align its dividend policy with Pampa’s controlling group’s need for cash.
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Negative Outlook for Steel Industry: Moody’s
Moody’s has chopped its 12-18 month outlook for the global steel industry to negative from stable, citing “weakened economic conditions, accelerated demand contraction globally, ongoing price contraction and still high cost platforms” which will inhibit performance and decrease financial flexibility. LatAm steel companies are realizing the constraints they will face. For instance, in early November, Gerdau announced that in light of the deteriorating situation of the global economy, it would seek synergies and to increase efficiencies and competitiveness to adjust to fluctuations in markets. Meanwhile, Usiminas said in late October that it may consider cutting output as demand falls.
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EM Debt Funds Drop
EM debt funds remain on negative ground, dropping 3.26% on the week ended November 20 and 26.04% year to date, making it the worst performer of all world income funds, which averaged a 1.87% drop for the week and 13.63% year to date. Global income funds, meanwhile, are down 1.59% and international income funds dropped 0.82%. Investors pulled $239m out of EM bond funds in the week ended November 19, according to EPFR Global, making this the 15th straight week of losses for the funds. The previous week the EM bond funds lost $1.3bn.